by Gavyn Jensen-Schneider, Research Associate

In a week of elevated volatility, the market marched ahead. The S&P 500 finished the week up +1.05%, while the Nasdaq rose +1.59%. The 10-Year Treasury yield, an interest rate indicator, closed at 4.71%, up +3 basis points (bps) from last week. The 6-Month US Treasury, a favorite of our US Treasury strategy, fell -10 bps to 3.94%.

The July Federal Reserve meeting might be the most newsworthy “uneventful” meeting in recent memory. The Fed held interest rates at 3.50% – 3.75%, though the policy choice was not unanimous; three members dissented, voting in favor of a rate hike. Bond yields moved up following the lack-of-move, with the 30-year US Treasury reaching 5.2%, its highest level since 2007. The steepening yield curve reflects market uncertainty about the Fed’s path forward as, under Chairman Warsh, the Fed no longer provides forward guidance in its policy statement. The Chairman believes that short-term uncertainty from eliminating the forward-looking statement will be beneficial in the long run, as the “direct and unfiltered” reaction of the bond market will improve market efficiency and prevent the Fed from overcommitting to a certain policy direction.

The AI investment cycle was top of mind—as it has been for many months—with a swell of AI-related companies reporting their second-quarter earnings. Amazon and Microsoft saw revenue growth accelerations for their cloud computing platforms; Amazon Web Services grew +37%, its highest rate in over four years, while Microsoft Azure grew at an all-time high of +43%. Both firms’ earnings reports were received warmly by investors as the stock prices for both AMZN and MSFT jumped by +15%.

Other AI-exposed names saw a more caustic reception. Meta, the parent company of Facebook and Instagram, saw its stock fall -8% as investors fussed over its capital expenditure; the technology giant plans to spend between $130 billion and $145 billion to build out its AI data center capacity. Apple saw a similar -8% tumble post-earnings as rising component costs—particularly for memory storage—for the iPhone, iPad, and MacBook lines have resulted in price increases of $100 to $300, which may put a damper on the upcoming product release cycle.

The US economy slowed down slightly in the second quarter of the year. Thursday’s preliminary reading of Q2 GDP growth came in at 1.5%, 60 basis points slower than Q1 and Wall Street expectations. The small decline was due in part to elevated imports and a decline in government spending. Consumer spending’s contribution to economic growth increased from Q1, even as higher energy and gas prices have squeezed real incomes. June PCE inflation data was also released on Thursday, falling 40 basis points from last month to 3.7%, though core PCE remained steady at 3.3%.

The start of a new month brings a fresh set of labor market indicators: June JOLTS on Tuesday; Q2 labor productivity on Thursday; and July nonfarm payrolls and the unemployment rate on Friday. Earnings reports continue their onslaught, with a number of major healthcare and pharmaceutical companies on the docket including Eli Lilly (LLY) and Merck (MRK).

In office news, Nat was live on stage at the 8th Annual Private Wealth Great Plains Forum, held this week in Downtown Minneapolis. As part of the fixed income panel, Nat highlighted the emerging fixed income opportunities in the current interest rate environment, with active portfolio management playing a key role in navigating and capturing that value.

by Gavyn Jensen-Schneider, Research Associate

Tensions in the Middle East continue to bubble, increasing the potential for a full-scale reescalation of the Iran conflict. The S&P 500 finished the week down -0.61%, while the Nasdaq fell -2.13%. The 10-Year Treasury yield, an interest rate indicator, closed at 4.68%, up +13 basis points (bps) from last week. The 6-Month US Treasury, a favorite of our US Treasury strategy, rose +12 bps to 4.04%.

For the first time since April, Brent Crude oil has crept above $100, notching an increase upward of 20% month-to-date. Financial markets typically disregard geopolitical developments until they are too big to ignore, and such is the case again with Iran. The Iranian-backed Houthi Rebels, who control southern Yemen, instituted a blockade on Saudi Arabian shipments through the Bab el-Mandeb Strait. Sitting at the mouth of the Red Sea, the Bab el-Mandeb handles 10-12% of international maritime trade, including a quarter of global container traffic. After the closure of the Strait of Hormuz, Saudi Arabia had rerouted much of its oil to Red Sea ports, so the Bab el-Mandeb closure throws yet another wrench into oil outflows.

Unlike the Strait of Hormuz, there is an alternative to the Bab el-Mandeb Strait as a ship can reroute around the Cape of Good Hope at the southern tip of Africa, taking an additional 9 days or so to reach its destination. Likewise, ships departing from the Red Sea can navigate north through the Suez Canal and Mediterranean Sea. President Trump has said the US “will hold Iran responsible, in that the Houthis are a surrogate and/or proxy of Iran, and major military punishment will be inflicted upon Iran and, of course, the Houthis, themselves,” and is seriously considering a “massive attack” on Iran that would be “bigger than ever before.” A resumption of large-scale combat activities could keep oil prices elevated for longer and spur inflation, a fear exemplified by the 10-Year Treasury yield, which hit its highest point since January 2025.

The AI buildout cycle continues to be hot and cold, with growth receiving tepid responses. Alphabet, Google’s parent company, released its earnings report on Wednesday, meeting or beating expectations in nearly every revenue category and notching an +82% revenue jump for its cloud services. The stock fell over 6% on the news, however, as scrutiny centered on increasing capital expenditures. Alphabet plans to spend $200 billion across 2026 to build out data centers and purchase chips to power its growing compute capacity needs. Some investors are getting skittish as returns on AI investment are lagging the immense capital spend.

Weekly jobless claims hit a historic low this week at 187k, the lowest level since 1969. The US labor market remains stable, though not exactly strong; while unemployment remains low at 4.2%, labor force participation—an input used to calculate the unemployment rate—has been steadily declining, reaching a 5-year low of 61.5% in June. The countervailing forces allow for two interpretations of the historically low initial jobless claims, as a smaller pool of laborers could imply fewer individuals are eligible to apply for unemployment, or a sufficient supply of jobs could mean fewer workers require unemployment insurance.

The earnings parade continues next week with Microsoft, Amazon, and Apple leading the high-profile lineup. Economic data are headlined by Thursday’s Personal Consumption Expenditures (PCE) inflation reading, as well as the first preliminary reading of second-quarter gross domestic product (GDP). Rounding out the week is a July 28-29 Federal Reserve meeting to discuss interest rates. According to CME FedWatch, financial markets are anticipating a 36% chance of a 25-bps interest rate hike.

by Gavyn Jensen-Schneider, Research Associate

Market indices fell as the Middle East conflict reheated and worries about AI spending continued to build. The S&P 500 finished the week down -1.55%, while the Nasdaq fell 2.90%. The 10-Year Treasury yield, an interest rate indicator, closed at 4.55%, down -1 basis point (bp) from last week. The 6-Month US Treasury, a favorite of our US Treasury strategy, fell -3 bps to 3.92%.

The US reinstituted a naval blockade of the Strait of Hormuz earlier this week, grinding commercial traffic to a standstill. Attacks from both sides have widened, with Iran targeting US allies Qatar, Kuwait and Jordan, and the US responding in kind with targeted strikes on critical Iranian infrastructure. Since the memorandum of understanding was cast aside nearly 10 days ago, Brent Crude oil prices have climbed around 20%. Markets have been generally unresponsive to the reheating conflict, as businesses have adjusted to the adverse geopolitical environment.

This week’s index declines were instead motivated by the AI investment cycle, as investors are antsy to see positive returns on investment. The PHLX Semiconductor sector index (SOX) has fallen nearly 25% from its May highs, even as semiconductor manufacturers, such as Micron Technology (MU), have posted record-breaking revenue and operating profit growth. If the immense capital expenditures from hyperscalers like Meta, Alphabet, and Microsoft result in higher earnings growth rates, it would suggest AI demand—and thereby semiconductor revenue growth—is sustainable going forward, rather than a feared case of “irrational exuberance.”

Earnings season kicked off this week, as the big banks including JPMorgan Chase, Goldman Sachs, and others reported strong revenue growth in the second quarter. JPMorgan saw record revenue across the company’s major business segments and 23.7% growth in earnings per share (EPS), with CEO Jamie Dimon stating, “It’s getting close to as good as it gets” for the banking industry. In healthcare, insurer UnitedHealth Group saw a return to form, with EPS growing 30% year-over-year. According to FactSet, blended second-quarter EPS growth for the S&P 500 is estimated at 18.8% year-over-year.

Inflation cooled in June according to the latest print of the Consumer Price Index (CPI). Headline CPI fell 70 bps from last month to 3.5%. Core CPI fell 40 bps to 2.6%, marking the lowest core inflation since February. While inflation is trending in the right direction, it’s still nowhere near the 2% target maintained by the Federal Reserve. Chairman Warsh, in a public hearing before Congress earlier this week, reiterated that fact: Fed policymakers “have no tolerance for persistently elevated inflation,” and while “there might be some that look at this morning’s data and say, ‘mission accomplished,’” that is not his view.

Earnings season will be in full swing next week, as a smorgasbord of companies including Alphabet (Google’s parent company) and Tesla report their earnings. Economic data are sparse, with initial jobless claims on Thursday and new housing orders Friday, the most notable publications.