Weekly Market Update July 27, 2026

The U.S. economy is forecasted to expand by 2.0% to 2.5% this year. The advance is likely to be driven, in part, by the astronomical spending on artificial intelligence (AI) infrastructure (i.e. data center construction). That, along with resurgent manufacturing activity, should help offset a modest decrease in the rate of personal consumption and weak residential construction. 

The Federal Reserve is still more concerned about price stability than the labor market, which is in decent shape. True, the pace of price growth at both the consumer and producer (wholesale) levels did ease some in June and job creation was somewhat uninspiring, as well. Still, the rate of inflation continues to run well above the Fed’s comfort level of 2.0%. Too, the recent resumption of fighting in the Middle East and resultant disruption to oil shipments have pushed crude prices higher and brought renewed worries about a reacceleration in overall price growth. 

We don’t expect the Federal Open Market Committee (FOMC) to change the Fed interest rate at its July meeting, which was to take place after we went to press. And the odds of a quarter-point interestrate hike at the September FOMC meeting recently fell to around 50%, following the June Consumer and Producer Price Index reports and commentary from Fed Chairman Kevin Warsh. At this juncture, Mr. Warsh would prefer to change interest rates by selling from or adding to the agency’s horde of U.S. Treasury securities rather than by raising the benchmark interest rate. That said, the Treasury market is doing some work for the Federal Reserve, with long-term Treasury yields on the rise. 

Meanwhile, second-quarter profit growth for the S&P 500 companies likely exceeded 20%. The earnings gains were primarily driven by the technology sector, the result of the continued massive spending on AI. The profit surge is providing support for stocks at a time when concerns are increasing about the enormous debt used to fund the AI initiatives. The traditionally light-on-assets balance sheets of technology giants are reflecting more AI assets, while also adding debt. 

Conclusion: We continue to recommend that investors maintain a diversified portfolio of stocks of high-quality companies with a history of steady profit and cash flow growth.

Source: Valueline.com