Economic Update 7-27-2026

In a light week for economic data, S&P services PMI continued to increase, while manufacturing data flattened out, although both remained plagued by higher inflation. New home sales reversed course and rose, although to a minimal degree.

Equities were mixed, with declines in the U.S. and minimal gains internationally, with offsetting views about AI and inflation implications of the Middle East war. Bonds fell back globally along with higher inflation expectations and movements in the dollar. Commodities rose broadly, led by another spike in oil prices.

U.S. stocks fell back last week, with minimal economic news, but some concern over AI spending as well as a ramp-up in military actions between U.S.-Iran, which caused oil prices to again spike, raising distress about the impact on future inflation reports. The U.S. administration announced tariffs of up to 50% on Canada in retaliation on tariffs for several imported goods, and, as other 10% temporary tariffs under Section 122 (international balance of payments issues) expired on Friday, new global tariffs were imposed under Section 301 (unfair trade practices, and seen as more likely to survive legal challenges).

However, the net tariff changes appeared too minor for markets to react as they did in 2025, and the assumption by markets that a ramp-up in tariffs and resulting higher costs could continue to weigh negatively in front of mid-term election season ramping up over the next three months. For perspective’s sake over the last 50 years, equity results have been flattish yet prone to volatility in the months prior to mid-terms, but have turned more positive than average afterward. Elections have tended to provide relief/finality to policy uncertainty seen in their run-up, regardless of outcome, although a split Congress has been received better than one might expect, due to the assumption of minimal drastic action.

By sector, gains were led by energy, utilities, and industrials, while the communications (Alphabet/Google and Meta) and consumer discretionary (mostly Tesla) sectors each declined by -6% for the week. Earnings season for Q2 pressed on, with 27% of S&P 500 firms now having reported, and the blended year-over-year growth rate having risen to 37.9%, which would be the strongest quarter in five years if it holds. Leadership continues to be driven by earnings gains in energy, communications services, and technology. Although, there have been some signs of additional scrutiny at the margins, with Alphabet/Google beating earnings expectations last week on extremely strong cloud revenue gains (over 80% year-over-year), but worries over a continued rise in AI infrastructure spend resulted in a price drop of -10%. A few ongoing key questions include: is all of the AI spend needed, when will it be too much, and when will the capex more dramatically translate to actual earnings? A few strategists have pointed out the echoes of 1999, and the internet/telecom overbuild, as a more cautionary comparative, although today’s fundamentals, revenue, and profitability remain far stronger than the general case at that time.

Foreign stocks offered slightly positive returns on net, outperforming domestic and despite a stronger dollar, and led by gains in the U.K. and Japan. The ECB left policy interest rates on hold, keeping a data-dependent view with the duration of oil price impacts remaining uncertain. Emerging market stocks were barbelled by gains in Taiwan, Brazil, and China, offset by declines in India, as higher oil prices raised import inflation concerns, and South Africa, as the central bank surprised by leaving rates unchanged in a weaker growth environment.

Bonds fell back by a strong fraction of a percent across the board, as higher oil prices again threatened near-term inflation reports, and raising the chance of a Federal Reserve hike at their meeting on Wednesday (with odds wavering between 15-35% last week). Floating rate bank loans fared better, with small positive returns. Foreign bonds generally fell back along with similar rate impacts in addition to a stronger dollar. It was hoped that the new U.K. prime minister, Andy Burnham, would instill some confidence in the nation’s fiscal affairs, as long-term gilt yields had continued to tick higher, trading at the widest spread in years versus higher-quality European debt.

Commodities rose across the board last week, led by energy, but precious metals and agriculture also saw gains of a few percent. West Texas crude oil prices spiked nearly 10% to $90/barrel, upon the U.S.-Iran tensions and rhetoric heating up again. That continued a back-and-forth news-driven chart since March, with prices bouncing around within a wide range of $65 to $110. Interestingly, it’s been reported that more oil tankers have been moving through the Strait of Hormuz with their transponders turned off to avoid detection, so outward flows could be higher than reported and/or subject to revision. The most recent concerns have been focused on the Bab-el-Mandeb Strait at the southern end of the neighboring Red Sea, which has been prone to strikes by Iran-affiliated Houthi groups in Yemen. Aside from oil traffic, that also remains a critical byway for general container shipping between Europe and Asia, with potential disruptions also being a negative for the global economy should these escalate further. (Continuing the back-and-forth movement, oil futures were down as much as -7% this morning as military strikes paused for several days in a row over the weekend, upon hopes for further talks.)

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Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.