8 min read Weekly recap
US Stock market drop
US stocks declined for a second consecutive week, pressured by weak Big Tech earnings and rising oil prices. The S&P 500 fell 0.6% to 7,411.98, the Nasdaq dropped 1.54%, and the Dow Jones slipped 0.4% to 51,947.25. A 3.5% gain in Apple supported the Dow on Friday.
AI-related stocks dominated headlines. Tesla dropped 14.5% on Thursday, marking its worst earnings-day decline on record, while Alphabet fell about 7% after raising its 2026 capital spending plan to $195–205 billion. Both reported negative Q2 free cash flow, renewing concerns that AI investments are exceeding returns.
Middle East war & oil surge
The US–Iran conflict escalated last week. US Central Command conducted a 13th consecutive night of strikes, while Iran-aligned Houthis opened a second front by attacking two Saudi oil tankers in the Red Sea and declaring a maritime embargo on Saudi Arabia, adding to ongoing disruptions in the Strait of Hormuz.
Brent closed above $100 on Thursday for the first time since May, reaching a two-month high near $102. It eased to around $97 on Friday after reports that Pakistan, with Chinese support, was seeking renewed US–Iran negotiations. President Trump threatened “major military punishment” for Iran and the Houthis, while US gasoline prices rose above $4 per gallon. With two key shipping routes at risk, a significant geopolitical premium has returned to energy markets.
The conflict continues to drive asset prices. A confirmed strike on Iranian energy infrastructure or broader Red Sea disruptions could push Brent above $100, while meaningful progress in mediation could bring Brent down to the low $80s.
Week Ahead
FOMC decision (Wednesday)
The Federal Reserve will announce its decision on Wednesday at 2 p.m. ET, followed by Chair Kevin Warsh’s press conference at 2:30 p.m. The FOMC is expected to keep the federal funds rate at 3.50%–3.75% and release no new economic projections. Attention will be on whether Warsh signals a possible September rate hike.
Market expectations have shifted. Fed funds futures now suggest two rate hikes over the next 6–12 months, and June’s dot plot showed nine of 19 officials anticipating a 2026 hike, increasing the likelihood of dissent. Oil above $100 and the 10-year Treasury yield near 4.7% have renewed inflation concerns, even as US activity remains strong, with the July flash composite PMI at 53.6. Gold is trading around $4,070 after a 2.5% weekly decline.
A hawkish hold that leaves a September rate increase possible could strengthen the USD and push Gold lower due to higher real-rate expectations. Conversely, a dovish signal acknowledging growth risks could support Gold, which continues to benefit from safe-haven demand amid geopolitical tensions.
Mega-cap earnings: Microsoft, Meta, Apple & Amazon (Wednesday–Thursday)
Four of the Magnificent Seven report this week: Microsoft and Meta after Wednesday’s close, coinciding with the Fed decision, followed by Apple and Amazon on Thursday. These companies represent about 17% of the S&P 500’s market value.
These reports follow last week’s sharp declines in Alphabet and Tesla, driven by Alphabet’s increased 2026 capital spending and Tesla’s weak profitability, raising concerns that AI investments are outpacing returns. Key areas to watch include Microsoft’s Azure and AI updates, Meta’s advertising and capital expenditure plans, Apple’s iPhone and services growth, and Amazon’s cloud margins. S&P 500 Q2 operating EPS growth is now estimated at about 36% year-on-year.
Positive updates on AI monetization and margins could stabilize the US 100 and halt the recent decline. However, further capex-heavy guidance may pressure the index and accelerate the shift away from megacap tech stocks.
Bank of Japan decision (Friday)
The Bank of Japan concludes its meeting on Friday and is expected to keep its policy rate at 1% — the highest in 31 years after June’s hike — while publishing updated growth and inflation forecasts.
The yen remains in focus. USD/JPY is near multi-decade lows around 164 after the yen’s worst week since May’s intervention. The US Treasury has urged the BoJ to tighten policy further, noting the yen’s continued weakness despite a narrowing rate gap. Japanese inflation is at a six-month high, and elevated imported energy costs are increasing pressure on Governor Ueda to indicate when the next rate hike may occur.
A hawkish hold that signals an imminent rate hike could push USD/JPY lower and reduce intervention risk. In contrast, a cautious stance from the BoJ may keep USD/JPY near multi-decade highs.
US Q2 GDP & Core PCE (Thursday–Friday)
The advance estimate of Q2 GDP will be released Thursday, followed by June core PCE, the Fed’s preferred inflation measure, along with personal income and spending data. Growth is expected to remain solid at about 2% annualized, following 2.1% in Q1. Core PCE is projected at 3.4% year-on-year, or 0.2% month-on-month.
These data releases will test the resilient-economy narrative. Strong July PMIs and jobless claims at 187,000 indicate momentum, but oil above $100 may keep inflation elevated. A solid GDP reading with a cooler PCE would be favorable for markets, while a higher-than-expected PCE would reinforce the Fed’s hawkish stance. The Dow Jones starts the week at 51,947 after nearing correction territory.
A combination of resilient growth and cooling inflation could support cyclical stocks and the Dow Jones. Conversely, a higher-than-expected PCE reading may pressure the Dow by increasing rate-hike expectations.
Eurozone Q2 GDP & CPI (Thursday–Friday)
The euro area will release Q2 GDP on Thursday and July flash CPI on Friday, shortly after the ECB kept its deposit rate at 2.25%. GDP is expected to show minimal growth, while inflation remains above the 2% target.
The ECB, currently the only major central bank still tightening, maintained flexibility for a possible September rate hike. The recent oil surge has increased price risks despite weak growth. EUR/USD is testing July lows near 1.138, pressured by a stronger dollar as US yields approach 4.7% and the rate gap with Europe remains wide.
A higher CPI reading that strengthens expectations for a September rate hike could support EUR/USD. In contrast, weak GDP and softer inflation would weaken the case for a hike and may push EUR/USD lower.
Bottom line
The escalating US–Iran conflict, now affecting both the Strait of Hormuz and the Red Sea, is the main market driver, keeping Brent near $100 and sustaining inflation risks ahead of the Fed’s decision. This dynamic shapes the week: a hawkish-leaning FOMC under Warsh, a critical round of mega-cap earnings following last week’s AI-capex concerns, US Q2 GDP and core PCE, the Bank of Japan, and euro-area growth and inflation data. Monitor Brent for geopolitical risk, Gold and the Dow Jones around the Fed and US data, the S&P 500 for Big Tech’s response to AI trends, USD/JPY ahead of the BoJ, and EUR/USD around euro-area releases.
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