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♦ Waterloo Capital ♦
Last Week
on Wall Street
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S&P 500
7,412
▼ -0.61% WK
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DOW JONES
51,947
▼ -0.38% WK
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NASDAQ
24,987
▼ -2.09% WK
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10-YR YIELD
4.69%
▲ +15 BPS WK
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LEAD Markets & Macro
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Earnings came in stronger than almost anyone forecast, oil and tariffs crept back into the inflation math, and the tape logged its first back-to-back losing weeks since March. What changed was not the results. It was what the market is grading.
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The week never really escaped the two forces that have been running the tape all month. Monday opened heavy, with the Middle East conflict widening again, crude climbing, and the same questions about the cost of the AI buildout that ended last week still hanging over the technology complex. Tuesday brought the week's best session as the chip names clawed back ground and investors settled in to wait for the main event: the first of the megacap technology companies to open their books for the second quarter.
What those books showed, and how the market responded, defined the week. The reports themselves were strong. The reception was not, because investor attention has migrated from the revenue line to the spending line, and the spending line keeps going up. The full story of Wednesday night and Thursday's reaction is below. Layered on top of it, the other half of the week's pressure came from the macro side: a conflict at sea that put a bid back under oil all week, a new round of import tariffs that took effect Friday morning, and a fresh economic survey suggesting the economy is speeding up rather than slowing down, all landing days before the Federal Reserve's next meeting. That story is below as well. Friday, fittingly, brought a measure of calm: crude eased for the first time all week and the indexes spent the day trying to stabilize.
Two straight down weeks reads worse in a headline than it has felt in a diversified account. The selling has stayed remarkably concentrated in the year's biggest winners, while energy has led, defensives have held, and the average stock has done its quiet work; on Friday morning, advancers actually outnumbered decliners inside the S&P 500 even as the index fought to stay flat. For diversified portfolios, that is the signature of a rotation being digested, not an exit being made. The accounts built to own the whole tape rather than the loudest fifth of it have spent two weeks collecting from the sectors the headlines ignore, which is precisely what that structure is for.
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BOTTOM LINE
Back-to-back down weeks for the first time since March, driven not by bad results but by the size of the bills attached to good ones. For balanced portfolios, the cushion came from everywhere the headlines were not.
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By the Numbers
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The streak: the S&P 500 posted its second consecutive weekly decline, the first back-to-back losing weeks since March |
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Earnings season: analysts expect S&P 500 profits to grow 23% year over year in Q2, a second straight quarter above 20%, a feat seen only once in the past two decades, per FactSet |
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Energy's quarter: energy sector earnings are expected to grow roughly 120% year over year, the fastest in the index, on war-disrupted supply |
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Valuation reset: the S&P 500's forward 12-month P/E slipped to 20.3, still above its 5-year average of 19.9 and 10-year average of 19.0 |
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Nasdaq drawdown: the index has now fallen about 5% from its early-June record as the AI trade continues to reprice |
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VIX: hovered near 18.6 through the week, elevated but well short of panic territory |
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· Two Stories That Moved the Tape ·
The Week's Defining Headlines
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STORY 01 Earnings · Big Tech
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The key takeaway,
the first two Magnificent Seven names opened their books Wednesday night, and both beat on revenue. Both also raised the price of the AI buildout, and both burned cash doing it. The market's response was the loudest single-day verdict yet that the bar has moved from proving demand to proving payback.
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On the growth line, there was little to complain about. Alphabet grew revenue 24%, with its cloud business surging 81%, and then raised its 2026 capital spending forecast to a range whose top end would make it the biggest spender in all of technology, while warning of higher numbers again in 2027. The quarter's capital outlays exceeded its operating cash flow, tipping free cash flow negative. Tesla beat revenue expectations by nearly $2.7 billion on record deliveries and its largest order backlog since 2023, but earnings landed well short of the consensus as margins compressed under promotional pricing and a spending program management itself described as a major investment cycle. Its free cash flow went negative too.
Thursday delivered the verdict. Alphabet fell 7%, Tesla fell 14%, the rest of the hyperscalers traded down in sympathy, and the Magnificent Seven collectively shed roughly $800 billion in market value in a single session. A year ago, and even a quarter ago, a raised capex forecast was read as confirmation of demand and rewarded accordingly. That reflex is gone. With the chip complex already repricing and a Chinese rival having spent the month demonstrating what frontier AI can cost when someone else builds it cheaper, investors are now asking when the hundreds of billions convert into free cash flow rather than whether the demand is real. Five more of the Seven report over the next two weeks, into a market that has made clear which line of the income statement it is reading first.
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DATA THAT DROVE THE STORY
| ■ | Alphabet Q2: revenue up 24% year over year, led by 81% growth in Google Cloud |
| ■ | Alphabet capex: 2026 forecast raised to $195 to $205 billion from $180 to $190 billion, with 2027 guided higher still; the quarter's $45 billion in outlays pushed free cash flow negative |
| ■ | Tesla Q2: revenue of $28.24 billion, up 26% and nearly $2.7 billion above consensus, on record quarterly deliveries |
| ■ | Tesla profitability: adjusted EPS of $0.33 vs. the $0.49 estimate; net income down 5% to $1.11 billion; 2026 capex expected to exceed $25 billion |
| ■ | Thursday's verdict: Alphabet fell 7% and Tesla 14%; the Magnificent Seven shed roughly $800 billion of market value in one session |
| ■ | What's next: the remaining five of the Seven report over the next two weeks, with Amazon's spending guidance already above $200 billion |
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Source: CNBC: Alphabet and Tesla test Wall Street's patience →
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STORY 02 Macro · Inflation & the Fed
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The key takeaway,
seven days after June delivered the first monthly decline in consumer prices in six years, the inputs behind that relief went into reverse. Crude pushed through $100 on a widening conflict at sea, a tariff round covering nearly all imports took effect, and Friday's flash PMI showed the economy accelerating with the steepest selling-price inflation in almost four years, all with the Federal Reserve sitting down on Wednesday.
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Oil did the early damage. Brent crude topped $90 on Monday as hostilities resumed, then punched through $100 late in the week after Yemen's Houthi militants claimed attacks on two Saudi tankers in the Red Sea, a step that widened the conflict beyond the Strait of Hormuz for the first time. Friday brought the week's first pullback, a 5% slide that took Brent back below $95, though the benchmark still finished the week higher, and the direction of travel for the month is unmistakable. Onto that base landed a new layer of import costs: the administration's Section 301 tariffs took effect overnight Thursday, levying 10% to 12.5% on the country's largest trading partners and touching nearly all U.S. imports, a structure built to survive the courts after the Supreme Court struck down the prior round. Energy products were notably exempted, an acknowledgment of exactly the pressure the oil market has been applying.
Then Friday's flash PMI removed the option of hoping a slowing economy would do the disinflation work on its own. The July composite came in at 53.6 against expectations of 52.2, an eight-month high, with services activity jumping, hiring resuming for the first time in three months, and business confidence at its best since November. Buried in the same release was the uncomfortable part: firms reported the steepest selling-price inflation in nearly four years. An economy re-accelerating while its cost inputs climb is a genuinely harder picture than the one June's price data painted, and it arrives days before the July 29 Fed meeting. Rate futures still price a hold this month, and roughly two-thirds of that market is positioned for a hike by year-end. Whether June's relief survives July's inputs is now the open question, and if the pattern of this year holds, the answer will show up in the data with a lag, not a headline.
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DATA THAT DROVE THE STORY
| ■ | Crude: Brent topped $90 Monday and touched $100 late in the week, then fell 5% Friday to below $95, its first decline in a week, still finishing the week higher |
| ■ | Escalation: Houthi militants claimed attacks on two Saudi tankers in the Red Sea, extending the conflict beyond the Strait of Hormuz |
| ■ | Tariffs: new Section 301 levies of 10% to 12.5% on top trading partners took effect Friday, covering nearly all imports, with energy products exempted |
| ■ | Flash PMI: July composite at 53.6 vs. 52.2 expected, an eight-month high; services jumped to 53.6 from 51.2 while manufacturing output hit a four-month low |
| ■ | The catch: the same survey showed the steepest selling-price inflation in nearly four years, alongside the first rise in employment in three months |
| ■ | The Fed: the FOMC meets July 29; rate futures price a hold this month, with roughly two-thirds of the market positioned for a hike by year-end |
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Source: S&P Global: Flash PMI, July 2026 →
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· Other Things Worth Knowing ·
Around the Water Cooler
Six stories from this week worth your morning coffee.
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EARNINGS · SEMIS
Intel earned double the forecast, and the stock fell anyway
A 25% sales jump, its best in nearly 15 years, plus a raised spending plan met the same reception as the megacaps'. The foundry also landed its first named outside customer this week.
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POST-IPO · SPACE
SpaceX has given back more than 40% since its record debut
June's largest-ever IPO has retraced sharply from its peak close, a reminder that even generational listings trade like stocks once the bell rings.
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TEXAS · MARKETS
Y'all Street update: TXSE finishes its symbol rollout this month
The Dallas exchange expects every national market symbol tradable by end of July, with ETP listings in Q3 and corporate listings in Q4, backed by a record $275 million raise.
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AI INFRA · DEALS
IREN signs $2.8 billion in new AI infrastructure deals
The data center provider surged nearly 20% Monday on the contracts, proof that even in a skeptical tape, signed AI demand still gets paid.
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GLOBAL · MACRO
Europe quietly returned to growth in July
The eurozone composite PMI hit a five-month high of 51.6, with Germany expanding for the first time in four months and price pressures there easing rather than building.
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WILDCARD · ECONOMY
The World Cup showed up in the economic data
Survey economists flagged a hospitality spending boost from the FIFA World Cup and America's 250th anniversary celebrations, with the caveat that the party-driven part may prove short-lived.
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Technical trading models are mathematically driven based upon historical data and trends of domestic and foreign market trading activity, including various industry and sector trading statistics within such markets. Technical trading models, through mathematical algorithms, attempt to identify when markets are likely to increase or decrease and identify appropriate entry and exit points. The primary risk of technical trading models is that historical trends and past performance cannot predict future trends and there is no assurance that the mathematical algorithms employed are designed properly, updated with new data, and can accurately predict future market, industry and sector performance.
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