US stocks concluded a volatile week with all three major indices posting weekly losses. The upcoming trading window is set to be the most information-dense of the quarter, featuring earnings from four mega-cap tech companies and a Federal Reserve policy meeting. Additionally, easing geopolitical tensions in the Middle East have driven a sharp retreat in international oil prices from the $100 per barrel mark.

The S&P 500 eked out a 0.05% gain on Friday but fell 0.6% for the week. The Dow Jones Industrial Average rose 0.46% on Friday, yet posted a 0.4% weekly decline. The Nasdaq Composite dropped 0.64% on Friday, leading the weekly losses with a 2.1% decline.

Four Tech Giants to Report Earnings; AI Spending Scrutiny Intensifies

The current week marks the peak of the US earnings season, with four of the "Magnificent Seven" tech stocks taking center stage. Microsoft Corp (NASDAQ: MSFT) and Meta Platforms Inc (NASDAQ: META) are scheduled to report on Wednesday, followed by Apple Inc (NASDAQ: AAPL) and Amazon.com Inc (NASDAQ: AMZN) on Thursday. Mirroring the market's focus on last week's results from Alphabet Inc (NASDAQ: GOOGL) and Tesla Inc (NASDAQ: TSLA), the core question remains whether massive capital expenditures on AI can translate into tangible returns.

Alphabet's second-quarter results were not fundamentally poor, with revenue and net profit both beating expectations. Its cloud business saw revenue grow by an impressive 82% year-over-year, and its search business showed resilience despite competition from ChatGPT and Claude. However, the company raised its 2026 capital expenditure forecast from a prior range of $180-190 billion to $195-205 billion, and indicated that spending would increase further in 2027. Concurrently, Alphabet's quarterly free cash flow turned negative for the first time since its IPO. Tesla's earnings also revealed a negative free cash flow alongside a significant increase in capital expenditure. Following these reports, both companies' shares plummeted on Thursday, wiping out a combined $500 billion in market value and dragging down the broader tech sector.

Torsten Slok, chief economist at Apollo Global Management, stated that the market is no longer satisfied with companies merely announcing increased AI investment. Investors demand a clear answer on whether massive capital outlays can drive profitability and accelerate returns. In a preview note for Microsoft, Deutsche Bank outlined three key bearish arguments: rising costs for upstream components like memory and chips, forcing firms to increase spending for AI deployment; uncertainty over long-term returns from massive AI platform investments, with free cash flow being eroded by capex; and concentration risk due to Microsoft's heavy reliance on OpenAI. Deutsche Bank forecasts Microsoft will raise its 2026 capex guidance from $215 billion to $238 billion, resulting in barely flat free cash flow for the year. Analysts acknowledged the market's scrutiny of massive investments is "understandable," noting that just a few years ago, Microsoft's free cash flow exceeded $70 billion. However, they argued that for Microsoft, and potentially for the entire "Magnificent Seven," these concerns may be overstated. The analysts stated, "The idea that Microsoft has almost no way to offset these losses in the coming quarters seems overly pessimistic to us."

Heavy Earnings and Economic Data Deluge

Beyond the four tech giants, a wave of industry leaders is also reporting this week, covering sectors including semiconductors, consumer goods, aerospace, pharmaceuticals, and energy. AstraZeneca plc (NASDAQ: AZN) reports on Monday, followed by The Coca-Cola Company (NYSE: KO) and The Boeing Company (NYSE: BA) on Tuesday. Lam Research Corp (NASDAQ: LRCX), Qualcomm Inc (NASDAQ: QCOM), and Starbucks Corp (NASDAQ: SBUX) report on Wednesday, while Mastercard Inc (NYSE: MA), Shell plc (NYSE: SHEL), and Anheuser-Busch InBev SA (NYSE: BUD) are due on Thursday. The busy earnings week concludes on Friday with reports from energy giants Exxon Mobil Corp (NYSE: XOM) and Chevron Corp (NYSE: CVX), pharmaceutical heavyweight AbbVie Inc (NYSE: ABBV), and power management leader Eaton Corp plc (NYSE: ETN).

Notably, SK Hynix Inc (OTC: SKHY) is set to report its first earnings since its US listing. Reports indicate that a senior advisor to the South Korean president revealed on Saturday that Samsung Electronics and SK Hynix will reach agreements with major US tech firms, including Nvidia Corp (NASDAQ: NVDA), for memory chip supply worth a total of $950 billion. This includes a $750 billion long-term contract for SK Hynix and a $200 billion chip deal between Samsung and Broadcom Inc (NASDAQ: AVGO). Furthermore, Nvidia and the SK Group announced an AI infrastructure plan valued at over $500 billion.

On the economic data front, the US GDP report for the second quarter and the June PCE price index are due on Thursday. Markets anticipate a 2.1% annualized growth rate for Q2 GDP, driven by consumer and business investment. Another report is expected to show a slowdown in the key PCE inflation gauge for June, primarily due to lower gasoline prices, although gasoline prices have since rebounded.

Fed Meeting Approaches as Markets Prepare for Two Outcomes

The Federal Reserve's policy meeting is scheduled for July 28-29. While investors widely expect the central bank to hold rates steady, the risk of a surprise rate hike cannot be dismissed. The Bank of England and the Bank of Japan are also set to announce their policy decisions this week.

Daniella Hathorn, an analyst at Capital.com, noted that the US labor market appears robust, with monthly employment figures consistently exceeding baseline levels and initial jobless claims falling to their lowest since 1969. Regarding inflation, recent CPI and PPI data showed a month-over-month decline, though year-over-year readings remain well above the target. However, the monetary policy outlook has become more complex due to rising oil prices from Middle East tensions, the announcement of new global tariffs by the Trump administration, and sustained demand from the AI investment boom. Fed funds futures indicate the probability of a 25-basis-point rate hike this week has risen to approximately 36%, up from a low of 10% just two weeks ago when the June CPI data was released. Hathorn stated that the strong labor market gives the Fed flexibility to raise rates if necessary. She added, "The data suggests the market may have been overly optimistic about a rapid shift to accommodative policy."

Cleveland Fed President Beth Hammack recently sparked market debate, stating, "For the first time in my tenure, I hear business people saying they think we need to act to curb inflation. Simultaneously, I hear consumers growing increasingly desperate as their incomes fail to keep pace with expenses. I've learned from these conversations that inflation is not driven by a single factor but is multifaceted." Dallas Fed President Lori Logan earlier this month advocated for a small rate hike, arguing that inflation is not on a sustainable path back to the Fed's 2% target. Both officials hold voting rights on the Federal Open Market Committee this week and could potentially dissent if the committee votes to hold rates steady. Citigroup suggests that more than two dissenting votes would be interpreted by the market as a stronger hawkish signal.

CME FedWatch data shows a 63.7% probability of the Fed holding rates steady in July and a 36.3% probability of a 25-basis-point hike. Market expectations for a September rate hike are even stronger, with the probability rising to around 80%. However, some Wall Street analysts argue that a rate increase could arrive much sooner than anticipated. Neil Dutta, chief economist at Renaissance Macro Research, believes the market could be surprised by a rate hike at this week's Fed meeting. He suggested that acting now would prevent the Fed from being forced into a reactive position in the coming months. Joseph Lavorgna, a former Trump Treasury official and current chief US economist at SMBC Nikko Securities, also pointed out that a rate hike this month would carry less political cost than one closer to the November midterm elections. He questioned the wisdom of delaying the first hike until September or October, saying, "What would that look like? Might as well do it now."

Policy uncertainty is creating a rare "two-way hedging" environment in the financial system. Pradeep Bhatia, CEO of Derivative Path Inc., noted, "Of the banks we work with, roughly a third are preparing for a rate hike, while the rest are hedging against a cut. This divergence shows the market has stopped trying to predict the Fed and is instead preparing for both outcomes."

The Bank of England is due to announce its rate decision, meeting minutes, and Monetary Policy Report on Thursday. With June inflation data falling short of expectations, the market broadly predicts the BoE will keep its benchmark rate unchanged. The Bank of Japan will announce its rate decision and economic outlook report on Friday. Market consensus expects the BoJ to hold steady this week as policymakers prefer to first assess the impact of the previous rate hike. However, with the yen falling to near 40-year lows against the US dollar, analysts anticipate the BoJ might signal a more hawkish stance.

Mideast Détente Signals Spark Oil Price Retreat from $100

In early Asia-Pacific trading on Monday, US stock index futures, precious metals, and cryptocurrencies all rallied, while international oil prices plunged. The shift in risk appetite was attributed to signs of cooling tensions in the Middle East. Iranian sources indicated that Iran would cease military action if the US stopped its strikes, though they remain "skeptical" of US intentions. Reports earlier stated that President Trump on July 24 ordered the US military not to launch strikes against Iran for that day, breaking a 13-day streak of US airstrikes. Trump told media at the White House on the afternoon of July 24 that the US and Iran are still in dialogue, claiming Iran is "serious this time." He also threatened that the US could resume military strikes "if necessary, and can escalate to a much higher level. We are ready and can act at any time."

Meanwhile, new developments emerged in US-Iran negotiations. On July 26, US Permanent Representative to the UN Michael Waltz stated that President Trump had paused military strikes against Iran to provide more room for diplomacy. Iranian Foreign Ministry Spokesperson Baghaei also confirmed that information exchange between Iran and the US continues, along with mediation efforts. Baghaei described the US-Iran Memorandum of Understanding as a brief 14-point document, not a lengthy or complex file. He stated the international community had hoped the US would honor its commitments "this time at least," but alleged that US actions constitute a serious and blatant violation of multiple articles of the MoU, marking "the third time diplomatic efforts have been betrayed."

As of writing, WTI crude oil futures fell 4.56% to $85.24 per barrel, and Brent crude futures dropped 4% to $88.01 per barrel.