Week ended July 24, 2026: U.S. stocks and bonds decline

U.S. stocks and Treasuries bore the brunt of uncertainty this past week related to earnings, A.I. spend/R.O.I., the ongoing war in the Middle East, and the trajectory of long-term inflationary expectations.  Global stocks did slightly better than U.S. stocks, even with ongoing volatility in the semi-conductor sector affecting Asian markets.  Yields were higher across the U.S. Treasury curve, with the yield on the 10-year US Treasury rising above 4.70% for the first time since January 2025.  The table below summarises the performance of key indices and assets last week and year-to-date.  More detailed tables can be found at the bottom of this update.

 Investors were mainly focused last week on earnings of tech giants Alphabet (GOOG), Intel (INTC), Tesla (TLSA) and IBM, as well as the unsettled situation in the Middle East and its effect on global oil prices.  Unfortunately, the U.S.-Iran conflict remains far from over, with the situation worsening and the conflict broadening in the region.  This sent oil prices sharply higher during the week, with WTI +5% WoW (even after a pullback on Friday), pushing gas prices back above $4.00/gallon in the U.S.  The ECB held its policy rates firm on Thursday, but was clear that higher oil prices feeding into (elevated) inflationary expectations could force the central bank to raise its policy rates again in the near future. 

Earnings that mattered last week

GOOG ( -7.8% WoW): Earnings beat expectations, delivering earnings which were four times higher than the same quarter of the year before (although there were some exceptional items in the 2Q26 results related to non-recurring gains).  Revenues increased 9% quarter-over-quarter. Even with these spectacular results, investors punished GOOG shares for again revising its capex spend higher (circa +$15 billion), with the spend mostly targeted to meet the insatiable demand for data centres (A.I.-related).  GOOG’s management was emphatic is saying that the investment was necessary because the company cannot currently meet strong demand for cloud services.  Nonetheless, the company’s operating cash flow was negative in the quarter, unusual for GOOG, even though margins improved.  Clearly, investors remain concerned about the difficult-to-calculate ROI for the significant capex spend by GOOG and other hyper-scalers.

TSLA ( -17.8% WoW): My readers know that I have little time for this stock, and I am not surprised to see it get hammered after the company again missed consensus analysts’ expectations.  Tesla is an innovative company, but its valuation rests on aspirational dreams of Elon Musk and his army of followers, no different than SpaceX.  Valuation metrics make no sense at all for this stock (10.7x sales, 156x forward P/E).  I can easily visualise a scenario in which TSLA and SPCX merge when feasible because Mr Musk might very well need to orchestrate this combination to keep the dream alive.  TSLA is an acquired taste – it’s not for me because of its ridiculous valuation.  For those of you that own the stock, I hope your dreams come true.

INTC ( -2.9% WoW): Intel beat on the top and bottom lines, providing support for the sharp increase in its stock price YtD (+250%).  The company had its best revenue growth in 15 years, and also experienced better-than-expected margin expansion.  INTC still looks expensive to me vis-à-vis its chip peers (7.9x sales, 105x forward P/E), but its recovery in the last two years has been impressive. 

IBM ( +0.7% WoW):  IBM missed on the top and bottom lines even after announcing the week before that its results would not be in line with consensus expectations.  The pre-earnings announcement on June 14^th (here) triggered a 25% decline in the share price that day, the largest single-day decline in the company’s history.  The shares were little changed following the official earnings announcement a week later because the price already reflected the bad news.  Based on a cursory reading, it seemed that software sales were the issue, a recurring theme affecting many SAS / software companies as A.I. remains a threat to their traditional businesses. 

ECB holds; bond market doing the Fed’s dirty work

The ECB held firm last week, as expected.  All attention will now be on a series of central bank policy decisions this coming week, including the Federal Reserve, the BoE and the BoJ.  

I was surprised to see that the CME FedWatch Tool is suggesting that there is a 35% chance that the Fed could increase its policy rate this coming week.  Bond yields are certainly signalling this possibility at the short end of the curve, while the long end is repricing to reflect higher inflation expectations. 

The good news is regardless of what the Fed decides (and I think it will do nothing), the bond market is clearly guiding the Fed and investors towards tighter monetary policy.  In other words, it feels as if movements in the yield curve are dictating Fed policy at the moment, not the other way around.  As oil drifted back above $100/bbl briefly last week – the first time since May – higher inflationary expectations clobbered bonds, with the yield on the 10y US Treasury hitting its highest level since early 2025.   In a perverted sense, this makes new Fed chairman Kevin Warsh’s job slightly.  Economic data suggests that the U.S. economy remains on solid footing, so the Fed has and will focus on the inflation portion of its dual mandate. 

For investors, it is important to remember that higher bond yields have a unique way of rattling stock investors, especially if bond vigilantes force the Fed to be more hawkish.  The risk is even higher than normal now because stocks remain priced to perfection.  Earnings have been fine so far, but earnings are last quarter’s news – bond yields better reflect the future, and it’s this simple: higher yields are bearish for stocks.  

What’s ahead

This coming week, investors will be focused mainly on a series of G7 central bank meetings, inflation data (June PPI in the US, preliminary July CPI in the Eurozone and Japan), and earnings, with four of the Mag 7 companies reporting this week along with a slew of other companies also reporting.    

The table below provides some of the earnings releases that interest me this coming week, and in the weeks ahead.   Following GOOG’s amazing results but higher capex, there will be a lot of focus on the hyper-scalers.

So far, roughly one-quarter of the S&P 500 companies have reported earnings, with around 80% beating top-line expectations and 85% beating bottom-line expectations.  EPS so far has increased 38% QoQ, an exceptional growth rate.  Top-line growth has been around 12% QoQ.  This week, 175 additional S&P 500 companies report earnings.  You can find nice recaps of S&P 500 earnings so far at “This Week in Earnings” (LSEG/Lipper) or “Earnings Insight” (FactSet).

This coming week, monetary policy meetings are occurring at the Fed, BoE and BoJ, with all three central banks expected to hold their policy rates steady.  (Most shocking to me is that the BoJ is unlikely to increase its policy rate.)

• FOMC (Fed): July 28-29

• Bank of England: June 30

• Bank of Japan: July 30-31

MARKET DATA AND TABLES

Below are tables of key indices and asset prices that have been updated for the past week. 

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