Weekly Newsletter: July 27, 2026
Two down weeks in a row for the first time since the beginning of the Iran war, and market participants are beginning to worry that the world is ending. While a bit on the hyperbolic side, the decline in the tech sector and AI specifically has been warned about for weeks on end. The earnings from Google last week (more tech this week) pointed out the huge spend that is beginning to exceed the cash generated from their business. If spending is above cash generation, then debt or equity needs to be issued to cover the shortfall. The bigger question is how long investors are willing to buy the debt and additional equity. The economic numbers were rather light the past week, highlighted by the jobless claims that came in at 40year lows. Continuing claims have been flat over the past 10 weeks, varying from the normal tendency of rising into the fourth of July week before falling again into early October. The stories of AI taking over the workforce may be a bit premature, judging by the past month or two of jobs data. This coming week will be loaded with drama as the Fed meeting is on Wednesday, along with the press conference to follow. The current “betting” is the Fed will stand pat for now, but if inflationary pressures continue to build, outside of higher energy prices, they may be forced to raise rates later this year. Tech earnings will also be a focus as investors hope to get answers to the capital expenditure growth and any hint of earnings from the big spend. As the summer heat settles in, there will be little relief from Wall Street.
The jobs numbers, whether weekly claims or monthly new payroll data, and consumer spending continue to befuddle economists. There have been plenty of stories about how AI is replacing workers, doing the coding and the work of an entire department. The truth has been much less dramatic. Companies are finding that AI is far from a perfect “employee” and requires double- or triple-checking the work output. In some cases, it is creating more work, not less. That has been evident in the jobs data so far this year. Companies may not be hiring much, but they are not laying off either. Looking at some of the consumer-related earnings over the past couple of weeks, the banking and credit card companies are indicating that the consumer remains very much engaged. Credit card purchases have been rising, but loan losses have been trending lower. Eating and drinking places are seeing sales growth month over month for most of this year as consumer demand remains consistent. Retailers like Wal-Mart and Target report their earnings late in August, which usually brings the earnings season to a close. They should provide one of the last pieces to a consumer puzzle that has been surprisingly strong so far this year.
While the stock market struggles with AI companies, the bond market is struggling with oil prices. As oil prices rise, so do yields on Treasury securities. The 10-year yields have been following a sawtooth pattern of rising for a month or so, declining a bit for a few weeks, then resuming the increase. Yields on the 10year bond have increased from roughly 4% at the end of February to nearly 4.7% today. While this is good for bond buyers today, it has created some losses for those purchased late last year and early this year. The higher yields may also impact the Fed and their decision to hike rates later this year. The bond market is already signaling higher long-term rates due to inflationary pressures (mostly from oil) that could bleed into other parts of the economy. Once embedded in pricing, it will be that much harder to reverse in the years ahead.
The earnings season has been fabulous so far, as overall earnings have been growing at double-digit rates for the sixth consecutive quarter, unusual at this stage of the economic cycle. Much of it has been pushed up by the large tech companies that have earnings gains well over 20% annually. However, those gains have been met with plenty of scepticism as investors are questioning how much is too much spending on AI and what the endgame is for the spending. This week, Microsoft, Meta, Apple and Amazon all report, and investors will be watching not only the spending, but also the commentary around how much more spending is likely in the quarters and years ahead. Some of the data center growth is needed to keep up with all the storage that is happening “in the cloud” (read: datacenters). Much of it is to support AI growth and AI “training”. At some point, there will need to be a return on the investment, and so far, many of the companies have been coy about cash generation and earnings from the huge ramp in spending.
The Fed and tech earnings take center stage mid-week. Warsh’s comments will be closely scrutinized for indications of the direction of interest rates. Tech is all about the spend.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.