Oil Briefly Tops USD 100 and Tariffs Return as Cheaper AI Models Raise New Earnings Questions

Weekly Market Commentary | Week of Jul 27th, 2026

A Recap of Economic and Financial Trends from the Prior Week

By: Michael Horvath, The Quinnipiac University Global Economics Research Team

Last Week in Review

• Renewed Middle East escalation and new global tariffs announced by President Trump pushed Brent crude briefly above USD 100 per barrel and drove 10-year Treasury yields to their highest level since early 2025

• All major U.S. indexes declined, led by the Nasdaq, as Alphabet's free cash flow turned negative for the first time and concerns around AI capital spending returns weighed on technology shares broadly

• European markets advanced modestly as the ECB held rates but signaled openness to a September hike, while Japan's Nikkei gained on financials strength and China's CSI 300 rose on state-backed buying in technology shares

Economic Recap

U.S. economic data last week pointed to resilient activity alongside intensifying inflation pressures. The S&P Global Flash U.S. Composite PMI rose to an eight-month high of 53.6 in July from 51.9 in June, driven by stronger services activity, while the manufacturing PMI edged down to a four-month low of 53.8. The report highlighted input cost inflation at a 14-month high, selling prices rising at nearly their fastest pace in four years, and supplier delays at their most severe in nearly four years amid Middle East-related disruptions. Initial jobless claims for the week ended July 18 fell to 187,000, well below the consensus estimate for around 215,000 and the lowest reading since 1969, while continuing claims edged down to 1.796 million. New home sales came in at a seasonally adjusted annual rate of 628,000, a 1.6% increase from May's revised reading but a 5.6% year-over-year decline, with the median sales price declining 3.3% from May to USD 398,300.

Internationally, the ECB left all three key interest rates unchanged but ECB President Christine Lagarde noted the ceasefire breakdown had resulted in serious developments in commodity markets and left the door open for a September rate hike. The S&P Global Flash Eurozone Manufacturing PMI climbed to 52.0 from 51.4, while the services PMI returned to expansion at 51.6, up from 49.4. In Japan, nationwide core CPI rose 1.6% year over year in June, up from 1.4% in May, with reports emerging that Bank of Japan officials could be prepared to tighten policy more quickly than markets anticipate if upside inflation risks materialize. The yen weakened toward JPY 164 against the U.S. dollar, a 40-year low, despite repeated intervention warnings from Finance Minister Satsuki Katayama. In China, the CSI 300 rose 2.65%, supported by state-backed purchases of nearly RMB 60 billion in technology shares, while the State Council called for stronger fiscal execution and faster deployment of already-approved fiscal resources.

Market Recap

Source: JPMorgan Asset Management, “Weekly Market Recap” (July 27^th, 2026). (Chart © JPMorgan Asset Management. Chart used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

Most major U.S. stock indexes finished the week lower as geopolitical escalation, new global tariffs, and growing concerns about AI capital spending returns weighed on investor sentiment. The Nasdaq Composite led declines, falling 2.88% to 25,138 and now up 8.50% year to date, while the S&P 500 declined 1.66% to 7,408 and is up 8.92% year to date. The Dow Jones Industrial Average fell 1.58% and the Russell 2000 declined 1.15%, remaining up 8.54% and 19.20% year to date respectively. The Russell 1000 Growth fell 2.10% on the week and is now up only 0.57% year to date, while the Russell 1000 Value declined a more modest 1.32% and is up 17.99% year to date. Technology shares came under broad pressure after Alphabet reported that free cash flow turned negative for the first time, raising investor concerns about hyperscaler return on AI capital expenditure. Brent crude briefly rose above USD 100 per barrel, driving the 10-year Treasury yield to its highest level since early 2025, with high yield bonds also generating negative returns.

Internationally, the MSCI EAFE declined 0.83% and MSCI EM gained 0.50%, now up 9.50% and 20.64% year to date respectively. The pan-European STOXX Europe 600 advanced 0.46% in local currency terms, with Germany's DAX rising 1.08%, the UK's FTSE 100 gaining 1.28%, and France's CAC 40 up 0.40%, while Italy's FTSE MIB slipped 0.15%. Japan's Nikkei 225 gained 0.73% as financials outperformed on rising JGB yields and BoJ rate hike expectations.

Market Themes

Cheaper AI Models Raise New Questions About Where Economic Rent Is Captured

BlackRock Investment Institute frames the central earnings season question not as whether companies will beat consensus, but whether today's extraordinary AI-driven profit levels can be sustained as cheaper models reshape the economics of artificial intelligence. Consensus expects a second consecutive quarter of more than 20% S&P 500 earnings growth, and early results have again exceeded forecasts. However, the emergence of powerful lower-cost Chinese AI models, including Moonshot's Kimi K3, has intensified competition in the model layer. OpenRouter data show Chinese models processing approximately 23 trillion tokens per week, compared with approximately 12 trillion for U.S. rivals, and Gartner expects worldwide spending on AI models and platforms to reach USD 64 billion in 2026, up 63% from 2025. As enterprise AI bills rise, companies have a stronger incentive to route workloads to lower-cost models, potentially eroding the pricing power of frontier model developers even as overall AI adoption accelerates. BlackRock argues that cheaper AI changes the winners rather than the investment case, reinforcing its preference for AI infrastructure over the increasingly competitive model layer, and will listen for two sets of signals on earnings calls: hyperscaler commitment to capital spending plans and evidence of investment returns, and broader corporate commentary on how rising AI costs and sovereignty concerns are shaping model routing and adoption.

Geopolitics and Tariffs Compound Macro Fragility Heading Into a Packed Policy Week

Renewed Middle East escalation and a fresh round of global tariffs announced by President Trump combined last week to push Brent crude briefly above USD 100 per barrel and lift 10-year Treasury yields to their highest level since early 2025. BlackRock Investment Institute notes that today's global economy has fewer buffers than at the start of the conflict, with oil inventories drawn down by approximately 0.5 billion barrels this year, leaving roughly 0.5 billion barrels readily available to absorb further disruption. The new tariff round adds a second layer of inflationary pressure on top of the energy shock, further complicating the Federal Reserve's policy decisions. BlackRock maintains that economic incentives for de-escalation remain intact for all parties, but acknowledges that the risk of a more prolonged disruption has risen following the breakdown of the memorandum of understanding earlier this month. The firm stays overweight U.S. equities and underweight long-term Treasuries, viewing the rise in yields as consistent with persistent inflation and structural fiscal pressures rather than a demand-driven growth slowdown.

Chart of the Week

Source: BlackRock Investment Institute with data from LSEG Datastream, "High Expectations: S&P 500 12-Month Forward Earnings, 2012-28," July 24, 2026. Notes: The dotted line shows the 20-year linear trend on a logarithmic scale, representing the long-run compound earnings growth path. The July 2028 projection is based on the latest 12-month forward earnings estimate and consensus expected earnings growth from months 12 to 24. (Chart © BlackRock Investment Institute. Used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

The chart plots S&P 500 12-month forward earnings on a logarithmic scale from 2012 through a July 2028 projection, alongside a dotted line representing the 20-year linear trend. From 2012 through approximately 2019, the actual earnings line tracked closely along the trend before dipping during the 2020 pandemic shock and recovering sharply thereafter. From 2024 onward, the actual line has risen materially above the long-run trend, reflecting extraordinary AI-driven earnings growth. The July 2028 projection extends this above-trend trajectory, sitting meaningfully above the dotted line. BlackRock uses this chart to frame the central question of the current earnings season: U.S. equities do not look especially expensive on a forward P/E basis because consensus expects this above-trend trajectory to persist, driven by the AI buildout. Whether cheaper models and intensifying competition ultimately compress earnings expectations back toward trend is the question that management commentary on earnings calls this week is most likely to begin to answer.

Market Outlook

Markets face a packed week against a backdrop of escalating Middle East tensions and new global tariffs. The Federal Reserve's rate decision on Wednesday is the primary focus, with BlackRock watching for whether Chair Warsh signals any adjustment to the higher-for-longer rate view. U.S. GDP and core PCE data due Thursday will provide the most comprehensive read yet on whether resilient growth and sticky inflation continue to support the high-for-longer view. The Bank of England and Bank of Japan also meet this week, with the BoJ widely expected to raise rates further. China's July PMI data will offer a timely read on whether the domestic economy is stabilizing following Q2's growth disappointment. On the earnings front, Microsoft, Meta, Apple, and Amazon all report this week, with investor focus on hyperscaler capital spending commitments and whether management commentary begins to answer the return-on-AI question that Alphabet's negative free cash flow raised last week.

Calendar Events

Economic Data:

Jul. 27 (Mon): Japan Services PPI

Jul. 29 (Wed): Federal Reserve rate decision

Jul. 30 (Thu): U.S. GDP (Q2 advance); U.S. PCE inflation (Jun); EU GDP and unemployment; Bank of England rate decision

Jul. 31 (Fri): Bank of Japan rate decision; EU HICP

Major Corporate Earnings:

Jul. 28 (Tue): Visa Inc. (Q3 2026); The Coca-Cola Company (Q2 2026); The Boeing Company (Q2 2026)

Jul. 29 (Wed): Microsoft Corporation (Q4 2026); Meta Platforms Inc. (Q2 2026); Qualcomm Inc. (Q3 2026); Starbucks Corporation (Q3 2026)

Jul. 30 (Thu): Apple Inc. (Q3 2026); Amazon.com Inc. (Q2 2026); Mastercard Inc. (Q2 2026)

Jul. 31 (Fri): ExxonMobil Corporation (Q2 2026)

Sources

J.P. Morgan Asset Management. "Weekly Market Recap PDF." J.P. Morgan Asset Management. https://am.jpmorgan.com/content/dam/jpm-am-aem/americas/us/en/insights/market-insights/wmr/weekly_market_recap.pdf

J.P. Morgan Asset Management. "Economic Update." J.P. Morgan Asset Management. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/economic-update/

T. Rowe Price. "Global Markets Weekly Update." T. Rowe Price Insights. https://www.troweprice.com/personal-investing/resources/insights/global-markets-weekly-update.html

BlackRock Investment Institute. "Weekly Investment Commentary: Cheaper AI, New Earnings Questions." BlackRock, July 27, 2026. https://www.blackrock.com/us/individual/literature/market-commentary/weekly-investment-commentary-en-us-20260727-cheaper-ai-new-earnings-questions.pdf

BlackRock Investment Institute. "Weekly Commentary Archives." BlackRock. https://www.blackrock.com/corporate/insights/blackrock-investment-institute/archives

Apollo. "The Daily Spark." Apollo. https://www.apollo.com/wealth/insights-news/insights/daily-spark

MarketWatch. "Economic Calendar." MarketWatch. https://www.marketwatch.com/economy-politics/calendar

Yahoo Finance. "Earnings Calendar." Yahoo Finance. https://finance.yahoo.com/calendar/earnings/