Investors took profits for a second straight week as escalating Middle East tensions pushed energy prices higher and heavy AI spending led to growing anxiety. The risk-off sentiment comes despite resilient services and manufacturing activity and an upswing in new home sales. Rising energy prices could throw a wrench in the Fed’s interest rate path, keeping markets volatile in the near term.
Key Highlights:
- Business activity accelerated in July, reaching an eight-month high. The S&P Flash PMI rose to 53.6, up from 51.9 in June. Numbers above 50 indicate expansion while those below signal contraction. The increase was confined to services while manufacturing growth slowed sharply as some of the stock building seen in prior months showed signs of fading. Pricing pressures also continued to hit businesses hard as input cost inflation reached a 14-month high and selling price inflation closed at a four-year peak.
- New home sales rose for the first time in three months in June, increasing 1.6% to an annualized rate of 628K. That was up from the previous month’s 618K. A 3.3% month-to-month drop in the median sales price to $398,300 helped to incentivize buyers but with interest rates rising, activity is likely to fall in the months ahead.
AI Jitters and Oil Fears Rattle Markets
Stocks slipped for the second straight week as investors grappled with rising oil prices and lingering concerns over increased AI spending by major tech giants. West Texas Intermediate Crude broke above the $90 level for the first time since early June, finishing up about 9% for the week. The move was driven by escalating tensions in the Middle East on reports of Iran-backed Houthi rebels opening up a new front in the Red Sea. With Houthi rebels joining the fight it puts at risk an alternate route for crude oil that could continue to send prices higher in the short-term. The risk of higher prices drove the 10-year U.S. Treasury yield to 4.70% on Thursday, the highest level since January 2025. Also pressuring stocks this week was more AI anxiety over spending, profits, and valuations. This time it was Google parent, Alphabet, which raised its spending forecast to $205 billion, up from a previous range of $180 billion to $190 billion. Driven by its AI spending spree Alphabet reported free cash flow falling into negative territory for the first time in its history. Despite AI spending concerns, the Q2 earnings season has been robust to say the least with earnings growth tracking at +38% year-over-year (YOY) with gains across ten of the 11 S&P 500 sectors. The healthcare sector is the lone sector expected to see an earnings decline. If there’s one sector’s earnings growth that may give investors heartburn, it’s the oil patch, which is expected to see profits rise 120.3% YOY. Geopolitical tensions have helped domestic producers by driving up prices and earnings to the detriment of domestic consumers. Services and manufacturing growth have thus far held up relatively well despite pricing pressures but continued Middle East turmoil could once again reignite inflation, prompting the Fed to hike interest rates later this year. We’ll get more color on the central bank’s thoughts next week at their July meeting. If there is any comfort in the week’s headlines it is that investors have seen this story play out before. Rising energy prices typically drive market volatility only to reverse sharply once the U.S. and Iran get back to the negotiating table. How long that will take is anyone’s guess but certainly the economic incentive is there for both parties. AI is likely to be the more persistent theme with investors grappling with the risks presented by pricey tech stocks relative to more attractively valued areas of the market.
The Week Ahead
The Fed holds its July meeting while key reports include Q2 2026 GDP and Core PCE.
Probity Advisors, Inc. Summer Intern Spotlight
This summer, Probity is excited to welcome three interns to our team: Thomas Jones, Jayashree Sethala, and Hunter Ryan. These individuals are utilizing their unique talents in computer science and data engineering to translate complex business needs into practical, high-impact solutions for our firm.
“The world has changed dramatically over the past 12 to 18 months, primarily through the increased accessibility of cloud-based data tools, automation, and artificial intelligence,” said Christopher Sorrow, Vice President of Probity Advisors. “When we envisioned an internship program that would be both meaningful for the interns and beneficial for Probity’s future, we focused on identifying talent that could contribute to our continued evolution and keep us at the forefront of technological shifts.”
Chris added, “Thomas, Jayashree, and Hunter bring a technical expertise that supports Probity’s ongoing evolution. Their work on our operational frameworks and internal workflows enables us to harness technology more effectively. By refining the tools our team uses to manage complex tasks, they are helping us lay the groundwork for a more streamlined and responsive firm—one that continues to deliver the proactive, sophisticated service our clients expect.”
Thomas Jones graduated from Southern Methodist University in May with a bachelor’s degree in computer science. Thomas previously interned with Skylark Private Equity Partners in Dallas where he worked on the underwriting and financial analysis of Skylark’s portfolio companies. During a prior internship with Iron Path Capital in his hometown of Charlottesville, VA, Thomas developed an automated data pipeline using Python, a programming language, to integrate raw data from multiple sources into a customizable KPI (key performance indicator) dashboard, giving his team real-time visibility into the firm’s most critical performance metrics. At Probity, Thomas is focused on enhancing our client experience through data management systems and supporting the firm’s workflows. Outside the office, he enjoys golf, chess, sports, and movies, and is a lifelong University of Virginia basketball fan.
Jayashree Sethala completed her master’s degree in data engineering at SMU this past May where she graduated with a 3.8 grade point average. With nearly three years of prior professional experience across multiple industries, Jayashree chose Probity as an opportunity to apply her data engineering expertise in wealth management. Outside of work, Jayashree enjoys watching movies and exploring her creative side through crafts and DIY projects. Her favorite part of living in Dallas is the outstanding Indian food, and while cricket is her sport of choice, Jayashree could not resist the worldwide excitement of the FIFA World Cup—cheering for all the teams this summer and simply enjoying the competition.
Hunter Ryan is a Dallas native who attended Parish Episcopal School where he was a center for the football team that won the Texas State Championship during his sophomore year. He will graduate from SMU this December with a double major in computer science and data science along with a minor in mathematics. Hunter’s interest in computer science stemmed from classes he took in high school where his teacher, Mr. Montana (definitely related to Joe Montana), recognized Hunter’s tremendous aptitude and encouraged him to pursue computer science in college and as a career. When he isn’t studying for his double major and his math minor, Hunter is part of the SMU Mustang football team’s offensive line, playing center and guard, while he manages to maintain his 3.6 GPA. Probity and Hunter connected through SMU’s Life After Ball Program that equips college athletes with real world experience to excel in their careers after college. Hunter is contributing to the full-stack enhancement of our digital onboarding suite, ensuring that our advisors, client service team, compliance officers, and operations receive information and manage workflows with even greater precision and speed.
Probity is thrilled to have these talented individuals as part of our team this summer. Their unique perspectives and technical skills are ensuring that Probity continues to deliver the sophisticated service our clients deserve.