The Future, Discounted 

By Crest Capital Advisors on July 27, 2026

Dow: (0.38%) to 51,947.25

S&P 500: (0.61%) to 7,411.98

Nasdaq: (0.46%) to 2,996.11

Russell 2000: (0.46%) to 2,996.11

Bitcoin: 61,506

10 Year Yield: 4.49%

Outperformers: Financial 3.73%, Communication Services 3.28%, Consumer Discretionary 2.55%

Underperformers: Real Estate (1.28%), Energy (1.13%)

U.S. markets finished a volatile week in the red as concerns around rising oil prices, higher Treasury yields, AI-related spending pressures, and new tariff announcements weighed on risk assets. Within equities, Energy was the clear leader, gaining several points for the week as Brent crude briefly surged above $100/barrel, while Technology, Communication Services, and especially Consumer Discretionary lagged amid sharp post-earnings declines in large-cap growth stocks including Tesla and Alphabet. In fixed income, bonds were broadly weaker as Treasury yields moved higher, with the 10-year Treasury yield rising, reflecting inflation concerns tied to higher energy prices and growing uncertainty around the Fed’s path. Overall, the week marked a rotation away from growth and into energy and value-oriented areas of the market.

The AI Paradox

Perhaps the most interesting market development this earnings season has nothing to do with earnings at all. It has to do with how investors are choosing to value the future.

Consider Google’s earnings this week. By almost any traditional measure, it was an outstanding quarter. Revenue exceeded expectations, Cloud continued accelerating, margins remained healthy, and management once again raised capital spending plans to support the AI buildout. Under almost any historical framework, that combination should have been rewarded. Instead, the stock sold off. (down -7.79% this week)

The concern was not the quarter. The concern was that Google is spending too much on artificial intelligence. Investors worried that tens of billions of dollars of incremental capital expenditures may never generate an adequate return on investment.

Now consider what happened just a day later.

ServiceNow also delivered an excellent quarter. The company beat expectations, raised full-year guidance, reaffirmed demand, and continued demonstrating that enterprise software spending remains remarkably resilient. Yet despite everything investors typically hope to see from a software company, the stock barely reacted to the upside and actually finished the week lower. (down -4.32% this week)

Those two reactions expose what we believe is one of the biggest paradoxes in today’s market.

On one hand, investors are punishing the companies building AI because they fear the infrastructure investments have become too large and too expensive to earn an acceptable return.

On the other hand, those same investors continue valuing many software and legacy businesses as though AI will inevitably disrupt their economics and permanently impair future cash flows. Those two views should not be able to comfortably coexist.

If Google, Microsoft, Amazon, Meta, and Oracle are making one of the largest capital allocation mistakes in corporate history by overspending on AI, then perhaps AI will not reshape enterprise software nearly as quickly as current valuations imply.

Conversely, if AI truly is about to transform knowledge work, automate large portions of enterprise software, and fundamentally alter the economics of corporate computing, then perhaps today’s capital spending isn’t excessive at all. It may simply be the admission price for participating in one of the largest technology transitions of our lifetime.

The market is simultaneously discounting both outcomes. History suggests reality is rarely that binary.

Technological revolutions tend to create winners and losers, but they almost never unfold as quickly as investors initially expect. Railroads didn’t eliminate commerce. The internet didn’t eliminate retailers. Cloud computing didn’t eliminate software vendors. Each innovation expanded the opportunity set while reshaping the competitive landscape. In our view, artificial intelligence will almost certainly follow a similar path.

For now, however, the market seems comfortable holding two opposing beliefs at once: That hyperscalers are spending far too much on AI, and that everyone else should already be suffering the consequences. This makes investing today much more challenging than some of the headline indices would suggest.

Eventually, one of those narratives will have to give. Until then, we remind investors to remain patient, today’s underperformers may just become tomorrow’s outperformers.

Speaking of Cap Ex

While capex spending is expected to remain strong, the Mag 7 now account for more than one-third of S&P 500 capex, creating a new concentration risk. The market has become increasingly reliant on a handful of hyperscalers continuing to invest aggressively, even as a moderation in capex growth looks increasingly likely. This doesn’t signal the end of the AI investment cycle, it simply reflects a more nuanced phase. As a result, the upcoming reporting season and capex guidance will be particularly important. It’s also becoming clear that not all capex is created equal. Higher spending driven by rising costs doesn’t necessarily translate into greater positive reactions, making the quality of capex just as important as the headline numbers.

The Flow Show

Equity ETFs are now approaching $800 billion in YTD inflows! This year’s pace continues to blow away any form of historical comps, running at a roughly 2x pace of both 2021 and 2025. Another way to view this statistic is to look at monthly flows, which show that July is averaging over $7.6 billion of fresh capital per day, up meaningfully from the March reset (when the Iran conflict took center stage) of $2.9 billion on average. Strong markets = strong flows.

Here’s another way to look at it (chart below) with each line representing the cumulative inflows for each calendar year over the past 10 years. You can see quite quickly how 2026 flows are far and away higher than anything we’ve seen.

The Creature Re-emerges

Just when investors thought the tariff monster had finally been put to bed, it emerged from the swamp once again this week. At least that’s what the sensational media headlines would have you believe.

Here’s what is really happening. Following the Supreme Court’s decision striking down the Trump Administration’s tariffs under the International Emergency Economic Powers Act (IEEPA), the White House moved this week to replace those measures with a more durable legal framework under Section 301. On the surface, it sounded like the return of an all-out trade war. But the numbers tell a much less dramatic story.

As the chart below illustrates, today’s tariffs bear little resemblance to the peak levels reached during the height of last year’s trade escalation. Our friends at Baird Strategas estimate the latest changes increase annual tariff collections by roughly $15 billion, a rounding error relative to the size of the US economy and a fraction of what investors feared only a year ago. More importantly, the effective tariff rate remains close to 7%, well below the roughly 11% peak reached during the fourth quarter of 2025.

In other words, while the headlines have changed, the economic backdrop has not.

This has become a recurring theme throughout the year. Markets initially react to the announcement, algorithms trade the headline, economists rush to update forecasts, and then investors begin looking at the actual numbers. More often than not, those numbers tell a far less dramatic story.

That doesn’t mean tariffs are economically irrelevant. They can influence supply chains, corporate planning, and consumer prices around the margins. But the latest round is unlikely to materially alter the trajectory of inflation, Federal Reserve policy, or corporate earnings.

If anything, the chart above demonstrates that the market has become increasingly desensitized to tariff headlines. Each successive announcement has generated less economic impact than the last, even if the accompanying political rhetoric remains just as colorful.

The creature may have re-emerged. Fortunately, it appears considerably smaller than the one investors encountered last year.

Economic Funnies

Crazy Stat(s) of the Week

• According to the Wall Street Journal, a record 556,850 people worldwide now have a net worth exceeding $30 million, up 14.5% in 2025 alone, marking the fastest growth since 2017.

Quote of the Week

“The Data Center Solutions business remains on track to exceed $1B ARR by the EOY. As we broaden our offering and further diversify our customer base and geographic footprint, we expect to surpass $2B annualized revenue run rate as we exit 2027″

– Olivier Le Peuch, Schlumberger CEO (earnings call quote from 7/24/2026)

Editor’s Note: A legacy oil service company is now firmly in the data center business

Calendar of Events to Watch for the Week of July 27th

Earnings remain in focus next week as we hit full peak earnings next week with MAG 7 names Microsoft, Meta, Apple, and Amazon reports in focus. Mixed in between will be plenty of additional ‘notable’ earnings reports.

The July FOMC meeting ends Wednesday with the release of the policy statement and Chair Warsh press conference. Surprisingly (to us anyway), markets are pricing in a ~30% chance of a 25 bp rate hike at the meeting, up from 12% a week ago. This week’s ramp in hawkish pricing followed the latest Middle East tensions, which sent Brent prices back above $100 a barrel, reigniting inflation concerns. While economists are split on whether this warrants action, we believe Warsh will look through any oil price spikes as temporary.

On the US Economic front, the main events will come after the Fed meeting on Thursday with Core PCE (Fed’s favored measure of inflation) and the preliminary reading on Q2 GDP.

Monday 7/27 – US Durable Goods for June are expected to bounce back from a -4.5% decline in May to a 3.0% gain in June. The Ex-Transports dataset (less volatile) is expected to post a 0.5% increase.

Tuesday 7/28 – July Consumer Confidence is expected to be roughly unchanged at 91.8. The Richmond Fed Index for July is forecast to come in at 6.0, up from 4.0. And the S&P/Case-Shiller Home Price Composite Index is expected to post a slight -0.1% decline for May.

Wednesday 7/29 – The main event for the week will be the conclusion of the Federal Reserve’s open market committee meeting. Economists are expecting an unchanged Fed Funds rate (despite market’s trying to suggest a rate hike as the likeliest next action). It’s the statement, whether there are dissenters (pushing for hikes) and what Chair Warsh has to say in his press conference that will ultimately move markets.

Thursday 7/30 – Just one day off the Fed meeting, the Fed’s favored measure of inflation, the Personal Consumption Expenditure (PCE) will be out with economists expecting a headline rate of 3.8%, up 0.3% for the month but down from a 4.1% annual pace previously. The Core (Ex-Food/Energy) is expect to post a 0.2% monthly increase and an unchanged annual rate of 3.4%. We’ll also get our first reading on Q2 GDP with economists looking for a 2.3% quarter-over-quarter increase and a 2.2% annual rate.

Friday 7/31 – The Q2 Employment Cost Index (ECI) is forecast to increase by 0.8% quarter-over-quarter to a 3.3% annual rate. The July Chicago PMI is projected to post a 57.1 reading, up from 56.7.

Source: MarketWatch / FactSet (July 24, 2026)