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♦ Waterloo Capital ♦
Last Week
on Wall Street
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S&P 500
7,490
▲ +1.05% WK
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DOW JONES
52,485
▲ +1.04% WK
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NASDAQ
25,374
▲ +1.59% WK
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10-YR YIELD
4.74%
▲ +5 BPS WK
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LEAD Markets & Macro
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A Fed hold that traded like a hike, a midweek air pocket, and an earnings season that bought the whole thing back inside 48 hours. July went out volatile, and green.
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All three major indexes finished the week higher: the S&P 500 added about 1%, the Nasdaq gained roughly 1.6%, and the Dow closed out a fourth consecutive winning month. The path there was anything but calm. A sharp Fed-driven selloff on Wednesday knocked the tape flat in a single afternoon, and by Friday's close the whole drop had been recovered and then some. The week's story is less that stocks went up than that they went up through that.
Two forces spent the week pulling in opposite directions. The Federal Reserve held rates on Wednesday, and the bond market treated the hold as a delay rather than a destination, pushing long-end Treasury yields to multi-year highs (more on that below). Then the hyperscaler earnings arrived Wednesday and Thursday night and re-armed the AI trade that had been wobbling since the prior week (more on that below, too). Underneath both, crude firmed back up as traffic through the Strait of Hormuz faltered again, keeping the energy-driven inflation question very much alive.
For diversified portfolios, this was a week of watching the two engines disagree. Equities looked at the same Fed meeting the bond market did and decided earnings mattered more; the 10-year yield still ended at 4.74%, up 5 basis points on the week and at its highest level since January 2025. When stocks and bonds argue this loudly, the argument itself is the reason balanced portfolios own both sides of it: one of them cushioned the Wednesday drop, and the other paid for the Friday close.
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BOTTOM LINE
A hawkish-sounding Fed hold and a blowout stretch of cloud earnings fought it out, and the earnings won the week: all three indexes finished green and the Dow wrapped a fourth straight winning month, even as yields climbed to levels not seen in over a year.
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By the Numbers
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Q2 GDP: grew at a 1.5% annualized pace, below the 2.0% consensus and down from Q1's 2.1% |
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June inflation: headline PCE cooled to 3.7% year over year from May's 4.1%; core PCE ran at 3.3% |
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The consumer: spending rose 0.3% in June while the savings rate slipped to 2.7%, the lowest since June 2022 |
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Crude: WTI back near $85 and Brent near $90 as Strait of Hormuz traffic faltered on renewed hostilities |
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Jobless claims: 197,000 for the week ended July 25, up 9,000 from the prior week |
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The Dow's July: a 0.7% monthly gain, its fourth consecutive winning month |
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· Two Stories That Moved the Tape ·
The Week's Defining Headlines
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STORY 01 Macro · Monetary Policy
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The key takeaway,
the FOMC voted 9 to 3 to leave rates alone, and all three no votes wanted a hike: the first time three policymakers have dissented in the same hawkish direction since 2016. With the new chair declining to offer forward guidance, investors read the hold as a postponement rather than a decision, and repriced September accordingly.
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The Federal Open Market Committee kept the funds rate in its 3.50% to 3.75% range on Wednesday, the fifth straight meeting without a move, but the vote came in at 9 to 3, with regional presidents Beth Hammack of Cleveland, Neel Kashkari of Minneapolis, and Lorie Logan of Dallas each formally preferring a quarter-point hike. Readers with long memories will recognize the trio: they were the same three who protested the statement language at Powell's final meeting in May. This time the protest graduated into votes. With inflation above the 2% target for more than five years and war-driven energy costs pushing the wrong way, Chair Kevin Warsh leaned into the division rather than papering over it, telling reporters, "I asked for a good family fight, and I got one."
What Warsh did not offer was a map. He has deliberately declined to signal where policy goes next, and on Wednesday that silence was expensive. Stocks sold off hard into the close, the 30-year Treasury yield pushed to territory it had not visited since 2007, and by the end of the press conference futures markets were pricing a better-than-even chance that September delivers the hike July did not. The bond market's verdict was blunt: a hold without guidance, delivered over three hawkish dissents, is not patience. It is a pause with the meter running.
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DATA THAT DROVE THE STORY
| ■ | The vote: 9 to 3 to hold the funds rate at 3.50% to 3.75%, the fifth consecutive meeting on hold |
| ■ | The dissents: Hammack, Kashkari, and Logan each preferred a quarter-point hike; the first triple dissent in a unified direction since September 2016 |
| ■ | Equity reaction: the Dow fell roughly 1,150 points Wednesday, its worst session in over a year, before recovering the drop by Friday |
| ■ | Long end: the 30-year Treasury yield climbed past 5.25%, its highest level since 2007 |
| ■ | September pricing: futures markets put the odds of a quarter-point hike at the next meeting near 60% after the press conference |
| ■ | Context: at its June meeting the full committee had penciled in one quarter-point increase by the end of 2026 |
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Source: CNBC: Divided Fed holds interest rates steady →
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STORY 02 Big Tech · AI Capex
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The key takeaway,
a week after capex fears knocked the megacaps down, Microsoft and Amazon delivered the cloud acceleration investors had been demanding as proof the AI bill is turning into revenue. The rebound was immediate and selective: the market paid up for monetization and kept punishing spending without it.
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A week earlier, Alphabet had turned a perfectly solid quarter into a selloff by pairing it with a capex guide and negative free cash flow that made investors question whether the AI buildout would ever pay for itself; the megacap complex fell hard with it. That was the tape Microsoft walked into Wednesday evening, hours after the Fed had already put the market on the floor. Its answer: cloud revenue grew 43%, well ahead of estimates, the clearest signal yet that the AI spending is showing up as profit. The stock surged the next day and dragged the entire market up with it, more than recovering Wednesday's damage in a single session.
Amazon made it two for two on Thursday night. AWS grew 37%, its fastest clip in more than four years, and the market barely blinked at the company raising its 2026 capital spending plan to $220 billion, because this time the growth arrived first and the bill second. The contrast was Meta, which lifted its own AI investment forecast the same week and fell for it, the difference being that Meta buys the compute while Microsoft and Amazon rent it out. That is the new sorting rule the market spent this week writing: the AI trade did not get cheaper, it got graded, and the grade now depends on whether there is a meter running on the other side of the spend.
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DATA THAT DROVE THE STORY
| ■ | Microsoft cloud: revenue up 43% year over year, beating estimates; the stock's surge led Thursday's broad rebound |
| ■ | Amazon AWS: revenue up 37%, the fastest growth in over four years, on total Q2 revenue of $200.6 billion |
| ■ | Amazon capex: 2026 plan raised roughly 10% to $220 billion; the stock added on the order of $340 billion in market value Friday |
| ■ | The setup: Alphabet's 2026 capex guide of $195 to $205 billion had sunk the stock 7% the prior week and dragged the megacaps with it |
| ■ | The combined bill: the four hyperscalers now guide to roughly $720 to $745 billion of 2026 capital spending |
| ■ | Thursday's rebound: S&P 500 +1.7%, Nasdaq +2.8%, more than recovering the prior session's Fed-driven drop |
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Source: CNBC: S&P 500 closes higher as Amazon surges →
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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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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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