July 27, 2026

“Almost all good businesses engage in pain today for gain tomorrow activities.”

Charlie Munger

US equities finished lower amid a sharp late-week selloff driven by renewed doubts over the sustainability of massive AI capital spending and escalating Middle East tensions that pushed oil higher. Here are the numbers, the S&P 500 declined 1.03% on the week (closing near 7,412), the Dow Jones Industrial Average slipped a milder .40%. the Nasdaq Composite fell more sharply, down 2.90%. Internationally, the FTSE 100 was the winner, up 1.28%, and the MSCI-EAFE gained slightly .06%. The 2-Year Treasury paid 4.337 and the 10-Year narrowing the spread yielded 4.681%.

So, what happened? Technology and growth names led the downside. Alphabet dropped nearly 7% after raising its 2026 capital expenditure outlook sharply (to $195–205 billion), which investors interpreted as evidence of escalating AI costs rather than pure strength. Tesla plunged over 14% post-earnings despite solid revenue, missing on profit. Semiconductors and related AI plays remained under pressure from positioning concerns and earlier reports of production adjustments by memory makers. Energy, industrials, and financials outperformed on the relative rotation and higher oil prices; defensive areas also saw selective support earlier in the period.

Getting into the weeds a little bit, Breadth was mixed but showed some resilience outside mega-cap tech, with equal-weight measures holding up better at points. Treasury yields rose, with the 10-year climbing about 15 basis points amid inflation concerns from oil. The dollar advanced modestly. Bitcoin and gold were relatively contained.

Across the pond, European equities were mixed to modestly positive by week’s end after recovering from a sharp Thursday selloff posted small weekly gains or limited losses, with oil & gas and banks among the stronger sectors. London outperformed on reduced political uncertainty following the new UK prime minister’s appointment. Luxury, autos, and some consumer names lagged. Asian markets (Far East focus) closed weaker overall. Japan’s Nikkei 225 fell sharply on Friday (around 2.7%) but managed a small weekly gain in some tallies after prior weakness. South Korea’s Kospi led declines (down ~1.9–5.7% in sessions), hit hard by chipmakers Samsung and SK Hynix. Hong Kong’s Hang Seng and mainland Chinese indexes (Shanghai, Shenzhen) declined 1–2.5%, while Taiwan and others also weakened. Elevated oil and global risk-off sentiment outweighed selective AI-related support earlier in the week.

All eyes on Interest Rates as the Federal Reserve’s next decision arrives on Wednesday, July 29. Markets currently price a hold as the base case for the 3.50–3.75% target range (fifth consecutive pause), but the probability of a hike has risen to the mid-30s percent range due to oil-driven inflation risks and strong labor data. Some officials remain divided, with a subset favoring earlier tightening. Full pricing embeds roughly one hike by September in some scenarios.

In significant economic news, US data was broadly constructive and pointed to ongoing resilience, with initial jobless claims plunging 22,000 to 187,000 (lowest since 1969). Some good news, housing starts surged 19% in June after a prior drop and the University of Michigan consumer sentiment rose to 54.4 from 49.5, and MBA mortgage applications rebounded. The Leading Economic Index slipped modestly. Earlier cooler inflation readings (including a rare monthly CPI decline) had eased some pressure, but oil’s rebound has reintroduced upside risks.

As the administration seems to have lost patience with the Iranians, the dominant risk remains the intensified US-Iran confrontation centered on the Strait of Hormuz. After a fragile earlier truce/memorandum, tit-for-tat strikes resumed and continued for consecutive nights, with the US targeting Iranian military and coastal infrastructure and Iran responding against regional US-linked sites and shipping. Commercial traffic through the Strait has been severely restricted, elevating insurance costs and supply fears for roughly 20% of global oil trade. This has directly fueled energy volatility, inflation concerns, and risk-off moves in equities, particularly growth and emerging markets. Secondary effects include potential broader regional spillovers and pressure on global shipping lanes. Other undercurrents (AI competition, trade, and fiscal policy in major economies) remain secondary for now.

Speaking of Oil, and the price impact, WTI crude surged during the week on Hormuz disruption fears, trading in the mid-$80s to low-$90s range and peaking higher intraday before settling around $89–90 by Friday (down from Thursday’s spike but still sharply higher week-over-week from prior levels near $80 or below). Brent approached or exceeded $96–100 at points before retreating modestly. Which is why the price at the pump increased after trending down for months. Further escalation or prolonged shipping restrictions would keep prices elevated; any credible de-escalation could reverse gains quickly.

Outlook Going Forward? This week is event-heavy: the FOMC decision and press conference (July 29), major tech earnings (Microsoft, Meta, Apple, Amazon, and others among the “Magnificent” group), second-quarter GDP, and PCE inflation data. These will test whether the AI spending narrative stabilizes and whether the Fed can maintain a patient stance amid oil volatility.

Near-term risks tilt toward continued volatility from geopolitics and energy prices. A sustained oil shock could force earlier Fed tightening talk and weigh on multiples, especially in growth/tech.

Conversely, signs of de-escalation in the Middle East, solid but not overheating growth data, or reassuring guidance on AI returns could support a rebound and broader market participation. Internationally, Europe may benefit relatively from energy sector strength and any policy stability, while Asia remains sensitive to oil, chips, and China demand signals.

Investors should watch shipping data through Hormuz, weekly claims/energy inventories, and central bank rhetoric closely. Positioning remains concentrated in certain themes, so rotations and mechanical flows can amplify moves. Overall, resilience in the US labor market and consumer provides a cushion, but external shocks dominate the risk premium for now.

In a word, more of the same but still moving forward.

Mike