July 20, 2026

 “Time in the market beats timing the market.”

 Common Wall Street adage

Last week the market took a breath, here are the numbers. The S&P 500 lost 1.19%, the Dow Jones Industrial Average was off 1.01%, Nasdaq was the biggest loser, off 2.18%. Internationally, the FTSE 100 managed a gain of .97% and the MSCI-EAFE was a little off .50%. The 2-Year treasury paid 4.183% and the 10-Year yield was 4.551%.

So, what happened? US equity markets experienced volatility last week, influenced by options expiration, semiconductor weakness, and concerns over AI spending and inflation. The S&P 500 closed around 7,458 on July 17 (down 1% that day and showing a weekly decline of about 1.5%), with the index fluctuating near recent levels around 7,450–7,534. The Nasdaq and tech-heavy sectors faced pressure, with QQQ down around 1.5% in choppy sessions. The Dow showed relative resilience in broader weekly contexts.

Earnings season is underway, with positive surprises in sectors like Financials contributing to blended Q2 growth expectations around 24.7% for the S&P 500. Markets remain sensitive to geopolitical risks (e.g., Middle East developments) and Fed signals.

The economic news was good, as the US economy demonstrates resilience amid moderating growth. Q2 GDP estimates are around 1.4% (as of early July), following Q1 at 2.1%. Job growth was modest (+57k in June), with unemployment at 4.2%. Inflation showed cooling, with a notable monthly CPI decline. Consumer spending, the key support to market activity, was positive up .2%. However, lower-income households remain cautious due to costs. Broader indicators point to steady expansion without recession signals (Sahm Rule well below threshold).

So, what’s the Federal reserve up to? The Fed maintains the federal funds rate target at 3.50%–3.75%. No change is widely expected at the upcoming July 28–29 FOMC meeting, with focus on data-dependent policy under Chair Kevin Warsh. The new chairman prefers to keep things close to the vest and the recent Monetary Policy Report and task force announcements signal ongoing modernization efforts. How the market is reacting is expectations lean toward potential future adjustments rather than immediate hikes, with some pricing in modest rate path shifts later in 2026.

Overall, some more good news on consumer sentiment with preliminary University of Michigan Consumer Sentiment for July rose to 54.4 (from 49.5 in June), beating expectations (51.0) and marking the highest since February. Gains were broad-based, driven by easing gas prices and lower inflation expectations (one year at +4.2%). However, levels remain well below historical averages (85), reflecting persistent high prices and geopolitical uncertainties that could pressure sentiment going forward.

In Housing Market and Interest Rates news, mortgage rates held in the mid-6% range, with 30-year fixed averages around 6.5%–6.55% recently (up slightly week-to-week in some surveys but stable overall). Forecasts for the rest of 2026 project rates hovering in the mid-6% range (e.g., Fannie Mae 6.4%), supporting gradual affordability improvements.

Housing shows balance with inventory rising modestly (aiding buyers), home prices hit records ($440k median) but with moderating gains. Existing home sales are projected to edge up slightly. Foreclosures increased year-over-year but remain far below crisis levels. Regional hotspots (e.g., Northeast markets) continue strong appreciation.

Across the pond, Europe’s economy faces headwinds (IMF euro area GDP growth 1.1% for the year), with structural challenges like energy dependence amplifying oil price sensitivity. However, the STOXX 600 has shown resilience, hitting record highs earlier in July and posting solid weekly gains in early-month sessions amid broadening rallies in cyclicals. European equities have at times outperformed or caught up to the US on softer US jobs data easing rate hike fears, though they remain vulnerable to US policy spillovers, tariffs, and global risk sentiment. The Impact on US Markets has been European weakness or energy-driven inflation can pressure US yields, commodity prices, and multinational earnings. Conversely, European strength or ECB policy easing can support global risk appetite and US exports. Recent Middle East tensions (affecting oil) link the regions tightly, with spillovers into US inflation and Fed expectations. My point is US resilience provides a relative buffer, but correlated selloffs (e.g., on tariffs or geopolitics) highlight interconnectedness.

The outlook going forward, markets enter the next week with FOMC minutes and data releases in focus. Cooling inflation and improving sentiment are positives, but volatility from geopolitics, earnings, and rates persists. We believe monitoring Fed/European developments remain key.

Mike