AE Wealth Management: Weekly Market Insights | 7/26/26 – 8/1/26

Weekly Market Commentary

THE WEEK IN REVIEW: July 26 – Aug. 1, 2026

Gulf heats up, GDP cools down

After a pause in the bombing campaign to allow room for talks, hostilities resumed after Iran tried (and failed) to attack U.S. military personnel in the region.¹ The story varies depending on which side you listen to, but the disposition of the Iranian administration clearly is not changing so the U.S. ramped its bombing campaign back up.

Predictably, oil spiked back up into the $85-per-barrel range after declining the week before, leading to higher market volatility as the conflict reignited.² All this turmoil had an impact on second-quarter gross domestic product (GDP), which came in at +1.5% actual versus the forecasted +2.0%.³

The lower-than-expected number doesn’t necessarily mean the economy is in trouble, because there was some good news under the surface. Core Real GDP — which includes consumer spending, business fixed investment and home building and excludes more volatile categories like government purchases, inventories and international trade — grew at a 3.9% rate in the second quarter, the fastest pace in more than three years. It’s now up 2.6% from a year ago.³

Inflation continues to be a problem (more in the next section), largely due to higher oil prices. The sooner this situation with Iran is resolved, the better it will be for all concerned.

Markets smell rate increases by year-end

At the second Federal Reserve meeting chaired by Kevin Warsh last week, the Fed maintained the federal funds target range at 3.50-3.75%, in line with consensus expectations.⁴ There was one key change in the Fed statement, which made it clear there is sentiment to raise rates if the inflation picture doesn’t improve.

Then at the post-meeting press conference, Warsh made it clear the Fed is committed to achieving the 2% inflation target.⁵ There was more dissent within the committee, with three of the 12 members voting to raise rates one quarter of one point. There seems to be a rising chorus of rate hawks.

One of the interesting side notes was that former Chair Jerome Powell voted with the majority to keep rates where they are, so all the Fed drama queens, Machiavellians and other conspiracy theorists didn’t get to wallow in some artificial storyline. But just to put a tiny drop of gasoline on the fire, the three bank presidents who voted in favor of raising rates were appointed by Powell. Interesting. Powell did what he’s always done, whether we liked it or not, and is once again waiting for more data before he changes his stance.

There are only three Fed meetings left in 2026, and markets are expecting at least a quarter-point increase by the December meeting.⁶ Markets didn’t react well at the conclusion of last week’s meeting, and we had a nasty little sell-off on Wednesday before recovering on Thursday.

This time, pretty much everyone thought rates would remain where they were, but Warsh’s approach to communicating (or the lack thereof) the Fed’s next moves will take some getting used to. There will be reduced forward guidance, so more people will come to difficult conclusions around intent, and that will certainly add to volatility.

Then there is the increased disagreement among policymakers that will create greater uncertainty, especially if they are vocal when they are making the speaker rounds. This could also result in heightened volatility and more variable market expectations. Investors should be prepared for a less predictable policy environment. The 10-year Treasury yield jumped to around 4.7% last week before retreating, in line with this assessment.

Personal consumption expenditures (PCE), the Fed’s preferred measure of inflation, came in at 3.7% for June, down from 4.1% the prior month.⁷ That would seem to support the Fed staying put, but that improvement was almost entirely on the back of declining oil prices, which have since reversed. Watch the improvement evaporate as soon as oil prices rise and rematerialize when oil prices decline.

The longer oil prices stay elevated, the stickier this inflationary environment will get. We will just get used to the “new normal” just like we got used to $2 and $3 gas. Once we get normalized to higher gas prices, everything else that seems expensive will seem normal, too.

Coming this week

• This week, we will look forward to the July jobs picture. Jobs have been mostly solid over the past couple of years, despite all the ups and downs in the economy. If jobs start to weaken, that could signal challenges for the economy as we head into year-end.
• Data starts on Tuesday with the Job Openings and Labor Turnover Summary (JOLTS) for June. Openings in May were 7.6 million, and expectations are that they will drop to 7.5 million for June.⁸ Fewer openings are never a positive sign.
• On Wednesday, the ADP National Employment Report is expected to come in at +65,000, a dramatic drop from the +98,000 reported in June. MBA mortgage applications will be the other interesting data item for the day.
• Thursday will be quiet as we await the big jobs data on Friday. Weekly jobless claims have been running at about a 200,000-per-week pace (last Thursday was 197,000).⁹ A dramatic increase would be problematic.
• The Bureau of Labor Statistics (BLS) employment situation (aka the July nonfarm payroll report) will be out on Friday. The unemployment rate stood at 4.2% last month, but only 57,000 new jobs were created.¹⁰ We need to rebound to about +100,000 new jobs, or grumblings or economic weakness will get louder. We will also get hourly earnings and will see if wages are keeping up with inflation.
• Second-quarter earnings reports are in full swing, with 61% of S&P 500 companies reporting results.¹¹ So far, 86% of companies have stated positive earnings per share (EPS), and 77% have reported positive revenue. Earnings growth for Q2 for the S&P 500 is 47.4%, up from 27.7% last quarter. If 47.4% is the actual growth rate for the quarter, it will mark the highest earnings growth for the index since the third quarter of 2021. This is shaping up to be a great quarter for earnings.
• For the current quarter, 20 S&P 500 companies have issued negative EPS guidance, and 34 have issued positive guidance. Valuation is near historical averages for the S&P 500, with the forward 12-month price-to-earnings (P/E) ratio at 19.6 vs. 21.4 last quarter, down mostly due to the stock market’s performance in March after the turmoil in the Middle East.

Sources:

¹ CNN. Aug. 2, 2026. “August 1, 2026—US-Iran war; State Department warns US citizens across the Middle East.” https://www.cnn.com/2026/08/01/world/live-news/iran-war-trump. Accessed Aug. 2, 2026.

² Business Insider. “Oil (WTI).” https://markets.businessinsider.com/commodities/oil-price?type=wti. Accessed Aug. 2, 2026.

³ Bureau of Economic Analysis. July 30, 2026. “GDP (Advance Estimate), 2^nd Quarter 2026.” https://www.bea.gov/news/2026/gdp-advance-estimate-2nd-quarter-2026. Accessed Aug. 2, 2026.

⁴ Jeff Cox. CNBC. July 29, 2026. “Divided Fed holds interest rates steady, but three members voted to hike.” https://www.cnbc.com/2026/07/29/fed-rate-decision-july-2026.html. Accessed Aug. 2, 2026.

⁵ Matt Peterson. CNBC. July 31, 2026. “Analysis: Markets heard a dovish Kevin Warsh. The Fed chairman’s own words suggest a rate hike.” https://www.cnbc.com/2026/07/31/kevin-warsh-fed-inflation-rate-hike-markets.html. Accessed Aug. 2, 2026.

⁶ CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed Aug. 2, 2026.

⁷ Bureau of Economic Analysis. July 30, 2026. “Personal Income and Outlays, June 2026.” https://www.bea.gov/news/2026/personal-income-and-outlays-june-2026. Accessed Aug. 2, 2026.

⁸ Bureau of Labor Statistics. June 30, 2026. “Job Openings and Labor Turnover – May 2026.” https://www.bls.gov/news.release/pdf/jolts.pdf. Accessed Aug. 2, 2026.

⁹ Department of Labor. July 30, 2026. “Unemployment Insurance Weekly Claims.” https://www.dol.gov/ui/data.pdf. Accessed Aug. 2, 2026.

¹⁰ Bureau of Labor Statistics. July 2, 2026. “The Employment Situation — June 2026.” https://www.bls.gov/news.release/pdf/empsit.pdf. Accessed Aug. 2, 2026.

¹¹ John Butters. FactSet. July 31, 2026. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_073126.pdf. Accessed July 31, 2026.

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