This was one of the most data-intensive weeks for the markets. The Federal Reserve held interest rates steady amid internal division, while June’s PCE report indicated that inflation is cooling but remains well above target. Additionally, oil prices stabilized following a geopolitical rally, and earnings from five major companies provided concrete data to inform the debate on AI capital expenditures.
PCE
Core PCE, the Fed’s preferred inflation gauge, rose 0.1% in June and 3.3% year-over-year, edging down from May’s pace. Headline PCE fell 0.1% for the month, pulling the annual rate to 3.7% from 4.1%, as goods prices posted their sharpest drop since late 2023. Both measures remain well above the Fed’s 2% target, but the trend is finally bending the right direction after re-accelerating for most of the first half.
Consumer spending held up well despite the inflation backdrop, rising $65.2 billion in June. Growth was broad-based — health care, motor vehicles, financial services and insurance, and recreational goods all posted solid gains — while a $48.1 billion pullback in gasoline and energy spending was the only meaningful drag.
The Yield Curve
The FOMC held the federal funds rate at 3.5%–3.75% on Wednesday, but the 9-3 vote was the real story: Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari and Dallas’s Lorie Logan all dissented in favor of a hike — an unusually hawkish split for a Fed that, under Chair Kevin Warsh, has dropped forward guidance entirely. Warsh called it “a good family fight” and reiterated the Fed has “no soft or implicit inflation target,” framing the hold as prudent rather than dovish.
The Treasury curve reflects that undertone. The 10-year sits near 4.73%, its highest level since January, with the 2-year around 4.29% — keeping the 2s/10s spread positively sloped. The more notable move is at the long end: 20- and 30-year yields have climbed sharply over the past month as higher term premium are needed to compensate for the persistent inflation.
The Crude Complex(ion)
Crude extended its geopolitical rally before settling into a tighter range. WTI, which bottomed at $66.39 on July 2, has since rallied more than 25% into the mid-$80s. The move remains almost entirely supply-driven due to renewed U.S.-Iran missile strikes which has essentially closed the Strait of Hormuz. For now, there is no indication on when international trade will resume in this part of the world.
The Stock Market
The S&P 500 pushed to a fresh intraday high near 7,490 this week before settling around 7,400, extending its rally off the March 2026 low of 6,313. The index is consolidating in a tightening range just below record highs, and importantly, RSI sits near a neutral 50 rather than overbought territory — a healthier setup than the price action alone suggests, even as MACD momentum flattens.
Big Tech Earnings: Is AI CapEx Turning Into Revenue?
The week’s real story was mega-cap earnings — and specifically, whether the AI capital-spending boom is starting to show up in revenue. Increasingly, the evidence says yes. Microsoft’s Azure grew 43% year-over-year, its third straight quarter of acceleration, alongside a $678 billion commercial backlog, up 84%. Alphabet’s Google Cloud grew a remarkable 82%. Amazon’s AWS re-accelerated to 37%, its fastest growth in 18 quarters. Meta’s advertising business grew 27%. Management commentary was consistent across the board: newly built AI capacity is being monetized quickly, not sitting idle.
But the capital intensity is rising just as fast. Microsoft guided fiscal 2027 capex to $255–260 billion, up from roughly $190 billion this year. Alphabet raised its 2026 capex guide to $195–205 billion and posted its first-ever negative free cash flow quarter, funding the gap with a $49.6 billion capital raise. Amazon and Meta both turned to fresh debt — $67 billion and $25 billion, respectively — to help fund their build-outs, with Meta pausing buybacks entirely. The debate has shifted from whether AI infrastructure spending generates real revenue — it clearly does — to whether that revenue is converting fast enough to justify capital spending that’s increasingly funded by debt and equity rather than cash flow.
Putting It Together
Every thread this week points to the same tension: an economy and a market that are still fundamentally strong running alongside rising costs on multiple fronts, whether that’s a hawkish Fed dissent, a geopolitical oil premium, or a capital-spending cycle that’s outrunning free cash flow. None of these are red flags in isolation. Together, they argue for watching the financing side of the AI build-out and the durability of the oil rally just as closely as the headline growth numbers over the next several weeks.
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President, Kisco Capital
This commentary is provided by Kisco Capital LLC for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Opinions are subject to change without notice. Past performance is not indicative of future results. All investments involve risk, including possible loss of principal. Kisco Capital and its clients may hold positions in securities discussed herein.
