Week ended July 31, 2026: volatile month draws to a close

• The FOMC left the policy rate intact mid-week in a rather unusual split decision, as Chairman Warsh remains a man of few words.  Investors don’t like this (lack of) communication very much based on the reaction of markets after the FOMC decision and Mr Warsh’s press conference on Wednesday afternoon.

• The bet is now on a 25bps rate hike at September’s FOMC meeting.  The US Treasury curve is signalling the same.

• Bank of England and Bank of Japan also left their monetary policy intact, although the Bank of England made it clear that one or two increases in the Bank Rate is likely this year should inflation remain elevated.  The BoJ looks poised to act at their next policy meeting.

• Stocks and bonds were again highly volatile for similar reasons as to prior weeks – the ongoing war in the Gulf, A.I. “doubts” as far as R.O.I., and earnings.

• Fortunately for tech investors, results from MSFT and AMZN cheered markets, and semi-conductor stocks rallied off of their mid-week lows as the A.I. trade looked to be back in vogue on Friday.

• UST yields headed higher (prices lower), and U.S. and European stocks eked out gains last week after a volatile few sessions.  The table below summarises market performance last week, with more detail in the tables at the bottom.

Central bank decisions, including the Fed, the BoE and the BoJ

As expected, none of the big three G7 central banks changed their monetary policies last week, although there were nuances that were not lost on investors. 

• Bank of Japan: Having increased its policy rate in June, the BoJ left its overnight bank funding rate intact on Friday, in spite of above-target inflation and the Yen being at its weakest level (vis-à-vis the USD) in nearly 40 years.  The BoJ intervened in foreign currency markets on Thursday after the FOMC decision (and before their own) to strengthen the Yen (+4% vis-à-vis the USD WoW).

• Bank of England: The Bank of England also left its base rate intact, at 3.75% in a split committee vote.  However, the monetary committee was clear that higher inflation could lead to one or two increases in the Bank Rate before the end of the year.  

• The Fed: The FOMC also did exactly as expected, leaving the Fed Funds rate at its current level, but two things caught the attention of investors:

  • The FOMC decision was not unanimous, with three members (of 12) dissenting and instead voting to increase the Fed Funds rate 25bps in order to address rising inflation in the U.S.  The CME FedWatch Tool is predicting a 25bps increase in the Fed Funds rate at the next FOMC meeting in September.

  
  

  • Chairman Warsh continued to say little about the Fed’s forward thinking, avoiding forward guidance altogether.  In other words, he is leaving it to market professionals to determine future moves in rates even though he was emphatic – in spite of the FOMC leaving the policy rate intact  – that the Fed’s priority was to get inflation back to 2%.

The FOMC decision and commentary afterwards led to heightened volatility in the U.S. equity and bond markets on Wednesday afternoon, with the S&P 500 closing 1.5% lower, and the yield on the 30y U.S. Treasury hitting its highest level (5.24%) in 19 years.  Clearly, investors do not seem enamoured with Mr Warsh’s approach of allowing markets (mainly bond investors) to do the Fed’s dirty work.  The “Unhedged” podcast (Spotify and Apple Music) on Friday was very informative as far as discussing Mr Warsh’s unusual approach so far at the Fed (circa 25 mins).

Earnings that mattered last week, Mag 7

MSFT ( +21.8% WoW): MSFT served up some excellent quarterly results on Wednesday, beating analysts’ consensus expectations on the top- and bottom-lines.  The company’s revenues and earnings were higher by 18% and 31%, respectively, vis-à-vis the same quarter of the prior year.  Investors were also impressed with certain operating metrics: the company’s revenue from cloud and related businesses (Azure) exceeded $100 billion for the first time, and 365 CoPilot (A.I.) has surpassed 30 million paid seats (see press release here).  The company also revised its guidance for the next quarter higher, and importantly, did not increase its expected capex spend on data centres, a matter that has generally troubled investors in hyper-scalers. 

META ( -6.5% WoW):  META met revenue expectations, but fell short on the bottom-line missing analysts’ consensus expectations.  The company also revised down slightly its forward guidance.  Investors remain concerned with the significant capex budget for the company, which is negatively affecting META’s cash flow. 

AMZN ( +17.0% WoW): AMZN beat on the top- and bottom-lines, raising its forward guidance as AWS struggles to meet strong demand for its cloud services.  AWS sales were up 37% YoY, its highest in four years and beating analysts’ consensus expectations.  AMZN also raised its expected capex spend to $220 billion for the year because of strong data centre demand and higher memory chip costs (since memory chips are needed for the data centres).  Similar to META, AMZN’s cash flow turned negative for the quarter due to higher capex, but – more like MSFT – the demand to capitalise on this spend is clearly visible.  Advertising and retail sales were also stronger in the quarter.

AAPL ( -7.2% WoW): Unlike its hyper-scaler peers in the Mag 7, AAPL has not committed to large amounts of capex for data centres as it is not in the cloud storage business. In fact, with more resilient (and certainly predictable) operating cash flow, investors have rewarded AAPL this year, although as I pointed out in my update on Tuesday, the shares have gotten very expensive.  AAPL reported strong top- and bottom-line earnings for the most recent quarter, with revenues up over 16% driven by better-than-expected iPhone and MacBook sales. However, the company was close on bottom-line earnings vis-à-vis expectations, mainly because of higher costs of memory chips.  Keep in mind that the company raised the prices of its MacBooks and iPads by $200 in late June, highlighting the higher cost of memory chips.  The company also guided analysts’ lower than was expected as far as next quarter’s revenue growth and gross margins. 

ARK and their ETF trades

I watch the portfolio activity of the innovative active ETFs of ARK Investment Management since Cathie Wood’s group of funds provides their end-of-day trades each day to investors (and to anyone on the ARK mailing list).  ARK Innovation(ARKK) – down 7.4% YtD – is the well-known ARK flagship fund for disruptive technology companies, including things like robotics, space, and digital assets. ARK is not my cup of tea, but following ARKK’s trades in particular provides a data point as to how disruptive investors think.  With that context, I have noticed that the ARK funds (not just ARKK) are piling into SPCX and TSLA, not surprising in that Ms Wood seems to worship Elon Musk even as both stocks “devalue” into reality.  But seeing ARK funds also buying TSM at the same time makes me squirm, mainly because I have just started a position in this leading semi-conductor foundry and would generally (but not always) be on the other side of ARRK trades.  TSM is far from disruptive, although it is dominant, one of the reasons I am building a position in this stock.  So go away, Ms Wood! 

What’s ahead

This coming week, investors will be focused on the July unemployment report for the U.S., to be released on Friday.  This might be scrutinised more than usual since 2Q26 GDP in the U.S. came in last week slightly lower than expected (+1.5%), although fortunately, U.S. consumers are continuing to spend like drunken sailors.  ISM services and manufacturing data for July will also be released this week for the U.S., another economic gut check, as will PMI data for the Eurozone.  Retail sales and PPI data will be released for July for the Eurozone. 

The table below provides some of the earnings releases that interest me this coming week, and in the weeks ahead.  

 So far, 304 companies in the S&P 500 index have reported earnings.  Revenues and earnings YoY are higher by 14% and 47.7%, respectively.  Needless to say, this has been very robust growth overall.  This week, 136 additional S&P 500 companies report earnings.  You can find recaps of S&P 500 earnings so far at “This Week in Earnings” (Lipper L/S/E/G)and “Earnings Insight” (FactSet).

This next series of central bank meetings occurs in September.  The next FOMC (Fed) meeting is scheduled for September 15-16.

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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