by Michael P. Reinking, CFA - Sr. Market Strategist

Published on 7/23/26 (a/o 3:00 pm)

All in all, considering the overarching macro backdrop the equity weakness is modest with major indices down ~1% for the week, but it does feel like we are on shaky footing with volatility starting to pick up across asset classes. The first steps in repairing the technical damage would be reclaiming Friday’s low and the 50dma, which is around 7,470. To the downside look for signs of support between the June low which was around 7,240 and the 100dma about 1% below that level. If things really start to get dynamic the 200d moving average is around 7k which would also represent a 50% retracement of the rally off the March lows. 

Alphabet reported earnings were pretty strong - cloud revenues were the standout up >80% on a y/y basis. However, investors are clearly focused on the increase in the Capex budget which increased by $15B to a range of 195-205B this year, to put that number in perspective that is larger than the market capitalization of ~90% of companies in the S&P 500. The company’s FCF also went negative for the first time since it went public in 2004 falling nearly $6B. Tesla is also trading sharply lower after its earnings last night, where Elon Musk noted the company would be spending over $25B on capex for the next couple of years.

This has put pressure on the hyperscaler complex as investors are clearly concerned about the level of spending, how companies will pay for that as free cash flow gets devoured. Borrowing is getting more expensive as credit spreads widen and the equities are now under pressure as well making any issuance more dilutive. How long that dynamic can exist before there is a demand response is weakening the impulse to buy the spending beneficiary stocks, though memory is modestly higher. There were a couple of reports within the semiconductor sector which were generally pretty positive. However, as we highlighted the expectations were so high coming into the reporting season that the stocks have mostly had a sell the news response.

Software has been another angle of the AI trade - after IBM’s pre-announcement last week there have been a couple of other companies highlighting that AI spending has impacted results as companies re-allocate budgets. Service Now had strong results overnight but that has failed to stem the selling.  The I-shares software ETF is down ~2% and about >5% this week. SAP results this evening will be the next key report to watch.

As mentioned above industrials have been a standout thus far including today as it is the best performing sector in the S&P 500. Allegion and United Rentals two companies indirectly benefitting from the data center construction are both up >10%. Defense stocks are rallying after earnings from Lockheed Martin and RTX Corp. Rails are also moving higher after a couple of strong and after Canadian National dropped its opposition to the UNP/NSC merger after striking a deal regarding connectivity rights and network expansion. Even airline companies which have been under pressure have highlighted strong demand and record revenues though they clearly are struggling to deal with the rising fuel costs.

Healthcare is also up >1% after strong results from life science and diagnostics companies (TMO/DGX). Molina beat estimates but is under pressure driven by Marketplace headwinds. CYH is the most recent hospital miss due to a worsening payer mix despite strong volumes. 

This morning’s claims came in better than expected falling to 187k from 210k last week hitting the lowest level since the year Apollo 11 landed on the moon, the Woodstock Festival and the premier of Sesame Street - “What is 1969? Alex” -  Continuing claims ticked below 1.8ml. Treasury yields are moving to the upside up ~5bps across the curve. 10yr yields have joined 2/5yr hitting a new YTD high. The USD index is pushing back over $101.

 

Global markets were mixed overnight. Markets in Asia closed mostly higher helped by the Alphabet Capex guidance and note that most of these markets were closed before oil prices really began to accelerate to the upside. In South Korea GDP was stronger than expected up 3.7% y/y. The Kospi was up 4.4%, the two memory giants were up a similar amount but there was very broad based strength. SK Hynix is reportedly a potential partner for the Intel Ohio fab project. The Nikkei ended slightly higher with strength in tech and financials. After yesterday’s Bloomberg there continued to be speculation that the BOJ could hike rates more aggressively than markets currently expect. However, this is not helping the Yen which has weakened to 163.50¥/$. European indices opened lower and had traded in a pretty tight range before taking another leg lower with US markets with most markets closing down >1%. The ECB left rates unchanged as expected. 

Oil prices are up >5% today and nearly 40% for the month. Metals have completely reversed yesterday’s rally.  Ag is mixed. Yesterday Republicans released the updated 616 page Clarity Act Bill. Democrats are pushing back suggesting the updates on ethics don’t go far enough. Bitcoin and Ethereum are both pulling back. 

Quickly looking ahead to tomorrow there are a couple of important earnings to watch including Intel and SAP after the close and American Express tomorrow morning. It is a busier day of economic data as well including Japan/EU inflation data overnight and the S&P Global flash PMIs.

 Earnings:

After-Market: AVB, CCI, CSX, EQR, FAF, FULT, GGG, GL, GOOGL, GTY, IBM, KALU, KNX, LBRT, LUV, MEDP, NOW, OII, PKG, RJF, RNR, RS, SANM, SLG, SON, TCBI, TSLA, TXN, WEX, WH

Pre-Market: AAL, ACI, ALLE, AMP, BFH, BX, CLF, CMCSA, COCO, DGX, DOV, DOW, FCX, HBAN, HOG, HON, LAZ, LMT, NDAQ, NSC, ORI, PCG, POOL, R, ROP, RTX, SNA, TMO, TMUS, TSCO, UNP, VC, VLY, WST

After-Market: ABCB, APPF, ASB, BYD, DLR, INTC, KN, LAZ, MOH, MXL, NEM, OVV, REXR, RNG, SAM, SAP, SCHL, SLM, URI, VRSN

US:

Global: