What we learned last week:
The apple cannot be stuck back on the Tree of Knowledge; once we begin to see, we are doomed and challenged to seek the strength to see more, not lees. – Arthur Miller
Major stock market averages saw a second week of losses. Struggling tech stocks and higher oil prices joined to lead stocks lower and bond yields higher.
Google’s stock declined more than 10% last week despite overall positive earnings, prompting most tech names to sell off on the market’s reaction. Geopolitics took center stage as President Trump issued a new round of tariffs and the U.S. launched airstrikes targeting Iran.
Starting with Google, the problem here wasn’t the financial performance of the company. Its parent company, Alphabet, delivered higher than expected revenue and earnings, and raised future earnings outlook. The growth in projected capital expenditure has Wall Street concerned. Google raised spending for the year to between $195 billion and $205 billion, an 8% increase from its previous range.
Investors are examining whether the same or better return on spending, given a rising price environment and the open questions surrounding a uncertain future of what AI demand looks like.
A look at the economy we see an old story pop back up. Looking back, you may recall, the Supreme Court ruled IEEPA, a law “to deal with any unusual and extraordinary threat” did not authorize Trump’s tariffs. Post that ruling a temporary 10% tariff applied on imports was enforced by the Trump Administration.
Bringing us up to date, the temporary tariffs expired at midnight last Thursday and the new levies will be enacted immediately under U.S. Trade Representitive’s Section 301 Investigation – failure to impose and effectively enforced a prohibition on importation of goods produced with forced labor.
Sixty trading partners saw tariffs of 10% to 12.5% take effect Friday. The U.K., the European Union, Canada, Mexico, China, Taiwan are among the sixty listed.
Finally, the story that has been nagging the market, the country, the budgets of households everywhere – U.S. and Iran war. Last week was a constant flow of negative news. Iran targeted American bases in Jordan and Iraq. The U.S. military responded with 13th consecutive strikes on Iran. Sadly, four US soldiers were killed in Iranian attacks. The Houthis targeted the Red Sea and Saudi oil vessels in the Bab el-Mandeb Strait.
The events pushed oil futures to close above $100 a barrel for the first time since May.
Friday morning, Reuters reported Pakistan is looking for ways to restart the stalled peace talks. Over the weekend the US and Iran paused fighting, raising hopes that peace negotiations could restart. Oil prices sank and market futures jumped on this hope.
The week ahead will have a lot for investors to digest. Four of the Mag Seven report earnings, among many blue-chip companies in the S&P 500. A rate decision from the FOMC and Q&A with Fed President Warsh, as well as a key inflation report. Of course, events Iran are always on the radar and potential market driver.
What’s ahead this week:
Economic Reports
- FOMC interest-rate decision Wednesday and Fed Chair Warsh press conference will have the attention of investors as rate hike expectations have risen since the prior decision in June.
- Personal Consumption Index (PCE) report will give investors insight into inflation and potential direction of future interest rates.
- GDP report on Thursday, second quarter growth is expected at 2.1%
Earnings
- Several blue chip companies across various sectors and industries report this week
- Visa, Coca-Cola, Boeing, UPS, Ford, Proctor & Gamble, Exxon, and Abbvie
- Mag Seven companies reporting
- Microsoft, Meta, Apple, and Amazon
- Companies tangential to the AI infrastructure story report earnings this week
- Seagate, Corning, Arm Holdings, Qualcomm
My goal is for you to feel educated and informed about variables we do and don’t have control over and find ourselves working within. I hope to do it in an informative and relatable way. As always, I value your relationship and planning objectives – my door is always open for conversation.
