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This Week on Wall Street
Week of July 27, 2026
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Market Commentary
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Tensions between the United States and Iran cooled over the weekend. Washington paused its campaign after 13 consecutive nights of strikes, and Iran stopped its own attacks, opening room for talks. Crude fell hard on the news, with Brent sliding back toward $90, and the 10-year Treasury yield eased alongside it. Equity futures opened the week higher, led by the Nasdaq. The relief is tentative. Iranian officials say no negotiations with Washington are underway, and traffic through the Strait of Hormuz is still a small fraction of its pre-war pace. From there, the week belongs to earnings. Investors spent last week rerating the cost of the AI buildout, selling the largest technology names after two of them lifted their capital spending plans and reported negative free cash flow. Microsoft and Meta report Wednesday, with Apple and Amazon on Thursday, and the question in each case is the same: how much is going out, and what is coming back. ExxonMobil and Chevron close the week on Friday, which gives the energy complex its own read after a month of violent swings in crude.
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The rate outlook has traveled a long way this year. June brought the first cooling in inflation in five months, with the annual rate falling to 3.5% from 4.2%, almost entirely because energy prices dropped. Then oil spiked again in July, and the case for easing gave way to something else. Futures now put roughly a one in three chance on an increase when the Federal Reserve announces its decision Wednesday, and a hike by September is close to fully priced. Most economists still expect a hold, which would be the fifth straight meeting without a change. There are no updated projections at this meeting, and Chair Kevin Warsh has said he intends to offer less forward guidance, so the statement and the press conference carry more weight than usual. Thursday brings the two releases that matter most. Core PCE, the inflation gauge the Fed targets, is expected to rise slightly on the month and leave the annual rate near 3.3%, still well above the 2% goal. The first estimate of second-quarter GDP lands the same morning, with consensus near 2%. That headline may understate the economy. A surge in AI-related imports subtracts from measured output even as domestic demand holds up, so the composition of the report will matter as much as the number.
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Semiconductors have been the engine of the index's gains this year. The Philadelphia Semiconductor Index is up roughly 66% year to date and turned in its strongest quarter on record in the second, before pulling back from a June high. The companies funding that boom have not been rewarded the same way. Hyperscaler capital spending is tracking above $400 billion this year, well up from two years ago, and for much of 2026 the market has treated those budgets as a discount rather than a premium. The split is visible in estimates too. Forward free cash flow expectations for the hyperscalers have been falling while profit expectations across the chip complex have gone the other way. Those two lines cannot diverge indefinitely, because one group's spending is the other group's revenue. Momentum sits on top of all this. A momentum book holds what has already worked, so semis have moved to the center of it, and positioning there is still crowded even after the summer pullback. That is what makes the capital spending guidance in this week's reports the line to watch. Any new emphasis on discipline or utilization would be felt most not by the companies reporting, but by the suppliers whose order books rest on those budgets.
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Chart of the Week
Semiconductors Have Become the Engine of Earnings Growth
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The chart splits year-over-year growth in S&P 500 earnings per share into three buckets. Semiconductors accounted for 48% of that growth in the second quarter of 2026, up from 16% in the first quarter of 2025. The hyperscalers moved the other way over the same stretch, from 36% to 9%. One reading is that the capital the hyperscalers are committing to AI infrastructure is landing as revenue further up the supply chain. The rest of the index has contributed a steadier share throughout, between 36% and 48%.
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| Source: J.P. Morgan Asset Management, Guide to the Markets (July 2026). Rebuilt by Waterloo Capital. Columns may not sum to 100% due to rounding. |
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On the Calendar
Economic Releases This Week
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| Monday |
Durable Goods Orders |
| Tuesday |
Consumer Confidence |
| Wednesday |
FOMC Interest Rate Decision |
| Thursday |
Q2 GDP (Advance Estimate), PCE Price Index, Initial Jobless Claims |
| Friday |
Employment Cost Index, Consumer Sentiment (Final) |
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Worth Reading
Stories to Start the Week
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| What is Newton? |
▼ 0–8
▬ 9–13
▲ 14–20
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Our Newton model determines the highest probability of future price direction using advanced algorithmic and high-order mathematical techniques on the current market environment. It scores securities over multiple time periods on a 0–20 scale (0 worst, 20 best). Trend and level both matter. A name moving from 18 to 16 still signals a strong level, with slight exhaustion in the trend.
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| Equities |
TREND |
THIS WK |
LAST WK |
| Foreign Developed | ▲ | 15 | 15 |
| Mid Cap | ▲ | 14 | 14 |
| Small Cap | ▲ | 14 | 12 |
| Emerging Markets | ▬ | 13 | 9 |
| Large Cap | ▬ | 10 | 10 |
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| Fixed Income |
TREND |
THIS WK |
LAST WK |
| Floating Rate Bond | ▬ | 11 | 8 |
| Short Term Bond | ▼ | 7 | 9 |
| Long-Term Bond | ▼ | 7 | 9 |
| High Yield Bond | ▼ | 6 | 9 |
| Intermediate Term Bond | ▼ | 6 | 9 |
| Corporate Bond | ▼ | 5 | 10 |
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| Sectors |
TREND |
THIS WK |
LAST WK |
| Utilities | ▲ | 14 | 11 |
| Industrials | ▬ | 13 | 14 |
| Health Care | ▬ | 13 | 8 |
| Real Estate | ▬ | 11 | 15 |
| Financials | ▬ | 10 | 16 |
| Consumer Defensive | ▬ | 9 | 10 |
| Materials | ▬ | 9 | 9 |
| Technology | ▼ | 8 | 8 |
| Energy | ▼ | 6 | 8 |
| Consumer Cyclical | ▼ | 3 | 9 |
| Communications | ▼ | 2 | 10 |
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| Market Segments |
TREND |
THIS WK |
LAST WK |
| Small Growth | ▲ | 14 | 8 |
| Mid-Cap Value | ▬ | 13 | 17 |
| Mid-Cap Growth | ▬ | 13 | 5 |
| Small Value | ▬ | 12 | 15 |
| Large Value | ▬ | 9 | 11 |
| Large Growth | ▼ | 8 | 10 |
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Notable Newton Moves This Week: The AI-linked corners of the market took the sharpest hits. Communications slid from 10 to 2 and Consumer Cyclical from 9 to 3, while Technology held in red at 8. Rate-sensitive groups followed yields lower, with Financials falling from 16 to 10 and Real Estate from 15 to 11, and fixed income deteriorated broadly, led by Corporate Bond dropping from 10 to 5. The offset came in defensives, as Health Care improved from 8 to 13 and Utilities pushed into green at 14. Further down the cap scale the growth reads firmed sharply, with Mid-Cap Growth jumping from 5 to 13 and Small Growth from 8 to 14.
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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.
Disclosure: Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results. This newsletter is not intended to be relied upon as forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Waterloo Capital to be reliable. The letter may contain "forward-looking" information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecast made will materialize. Reliance upon information in this letter is at sole discretion of the reader. Please consult with a Waterloo Capital financial advisor to ensure that any contemplated transaction in any securities or investment strategy mentioned in this newsletter aligns with your overall investment goals, objectives and tolerance for risk. Additional information about Waterloo Capital is available in its current disclosure documents, Form ADV, Form ADV Part 2A Brochure, and Client Relationship Summary report which are accessible online via the SEC's Investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using SEC # 133705. Waterloo Capital is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting or tax advice.
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