Oil up, tech down… The Houthis are back in action... Mag 7's earnings are off to a bumpy start... Alphabet's first-ever negative-cash-flow quarter... Tesla's burning cash, too... Rotation and a real-time case for diversification...
Oil up, tech down...
That was the story today – and you may want to get used to it.
Oil futures shot up more than 6% today, with Brent crude – the international benchmark – topping $100 per barrel for the first time since late May as the war with Iran spills into a second key energy chokepoint.
You see, the Iranian-backed Houthis are back in action.
Since we published yesterday, a pair of Saudi tankers was reportedly attacked off the coast of Saudi Arabia – specifically, off the country's Western coast that borders the Red Sea and leads to the Bab el-Mandeb strait. That's opposite the coast of the Strait of Hormuz, where up until now, most of the trouble has been in the Persian Gulf.
For much of May and all of June, investors largely dismissed troubling signs of U.S.-Iran relations, especially after the two countries agreed to a 14-point memorandum of understanding ("MOU") aimed at brokering a resolution to the war over 60 days.
But things turned for the worse when Iran attacked tankers in the Strait of Hormuz a few weeks ago. Back-and-forth attacks have been happening for nearly two weeks, making the Iran-U.S. MOU meaningless. And the market is now acting like it.
Oil futures have soared this month. Near-term Brent crude contracts are up nearly 40% – and for good reason.
The Strait of Hormuz has been essentially "closed" again for about two weeks, meaning roughly 20% of the world's energy supply is disrupted like it was months ago – if not worse, given damaged infrastructure.
Now, another chokepoint in that supply – around 4.2 million barrels of oil flow through the Bab el-Mandeb strait each day – is in the crosshairs of drones and missiles from the Houthis (you can read some more we wrote about them here, back at the start of 2024).
There are more questions than answers about what comes next, but investors and traders are pointing toward a replay of the spring, when the war first began. Oil futures are up big, and energy stocks are up about 10% in a month.
Meantime, the 'rotation' out of tech continues...
As we mentioned on Tuesday, the Magnificent Seven have started reporting their latest round of quarterly earnings. Given that these stocks make up roughly 30% of the S&P 500 Index, the results influence short-term market direction.
That sure happened today.
Yesterday after the markets closed, Alphabet (GOOGL) reported its second-quarter results. On the surface, the company is firing on all cylinders. Revenue jumped 24% year over year, led by Google Cloud's 82% surge in revenue.
Net income nearly quadrupled, with operating income growing roughly 30% and Alphabet's equity investments seeing a $98 billion gain (which includes Anthropic and SpaceX).
In Alphabet's AI business, its Gemini app now has 950 million monthly active users ("MAUs"). That makes it one of the most-used apps in the world, and only trails ChatGPT in the AI space (which just crossed more than 1 billion MAUs in May).
That's all well and good, but what investors are really focusing on is the AI capital-expenditure ("capex") forecasts.
As our colleague and Select Value Opportunities editor Mike Barrett explained in an article published on the website of our parent company MarketWise earlier this week, capex is the "market-moving number" in the report.
And it sure did move the stock today. Alphabet was down roughly 7% to its lowest level in about three months.
The why is simple... Alphabet entered a cash-flow deficit...
While revenue was up more than 20% year over year in the second quarter, Alphabet spent about $45 billion in capex, doubling from the same quarter last year. Meanwhile, operating cash flow was $39 billion in the quarter. That huge capex number means Alphabet is now in a free-cash-flow deficit.
As the Financial Times shared on social media platform X, it marks the first time that Alphabet has run at a cash-flow deficit...
For the full year, Alphabet is now forecasting between $195 billion and $205 billion in capex – up from its previous forecast of $180 billion to $190 billion.
On the company's earnings call, Chief Financial Officer Anat Ashkenazi said that the increase was the result of Alphabet pulling forward investment to build capacity to meet "growing demand."
That number would make Alphabet the biggest hyperscaler spender in 2026, though it could soon lose that title if Amazon (AMZN) raises its capex forecast in its own earnings report next week.
The money has to come from somewhere...
As we've written, these companies can no longer cover their spending plans with the cash flow from their operations. By pursuing and building AI infrastructure, they've become much more capital-intensive businesses than they were before. So they either have to raise new debt or issue new shares. Or, in the case of Alphabet, do both.
As we wrote in the June 2 Digest, Alphabet raised $50 billion in debt over the past 12 months, and it was looking to raise $80 billion from issuing new shares.
Since these investments aren't coming from their own cash flow, hyperscalers are on shorter leashes to show the payoff from the massive capex boom.
Today, Mr. Market was not impressed with the higher spending forecast. As we mentioned, Alphabet shares were down roughly 7% today. Alphabet is now down around 20% from its most recent high in May.
Shares of Elon Musk's Tesla (TSLA) did even worse today...
Tesla lost more than 14% after the company reported negative free cash flow for the second quarter, while its capex surged more than 140% year over year to around $5.8 billion.
During an earnings call with analysts, Musk put a spin on a "massive capex year" and investments in semiconductor production and development of its humanoid robot. Musk said...
I'm confident that all the things that we're investing in will yield incredible returns. Really, maybe the best capex returns that we've ever seen.
We shall see.
Notably today, all the Magnificent Seven were lower. Amazon shares were down 4.5%, Meta Platforms (META) was down more than 3%, Microsoft (MSFT) lost around 2%, and Nvidia (NVDA) and Apple (AAPL) were down around 1%. As a result, the benchmark S&P 500 was down around 1.2%.
The story isn't over yet in the near term, either.
We'll get earnings reports from Meta Platforms, Microsoft, and Amazon next week. Their capex forecasts will have just as large an impact on the AI ecosystem – and broader market – as Alphabet's did.
It looks like a troubling picture...
When it comes to Iran and the market, it's not about the politics of war, but what the physical attacks involved in it mean – that is, disrupted energy supply... inflation... and maybe higher interest rates and a tougher business environment.
As we wrote on Monday (which we think bears repeating), the ramp up of U.S.-Iran hostilities is happening as the Federal Reserve is to meet again next week. It will be the second time under new Fed Chair Kevin Warsh. What comes out of it could be pivotal for the market. As we said...
Should the U.S. and Iran reach another détente (long-lasting or not) before next week's Fed meeting, it would give Warsh leeway to float the idea of neutral interest-rate policy (at the least), and maybe even the cuts President Donald Trump would prefer down the road.
However, if the market has reason to believe inflation will be "sticky" for longer, expectations for interest-rate hikes will persist and maybe even grow from the roughly 50/50 odds the futures market has priced in for a hike at the Fed's September meeting.
All things being equal, a lower interest-rate environment is often a tailwind for growth stocks. But should high(er) inflation persist, and Warsh talks up a big game about fighting higher prices, money could rotate into more "boring" plays like energy, materials, certain commodities, or healthcare.
Today, we saw this rotation. At the same time, a company like Alphabet shocking people by reporting its first-ever quarter of negative cash flow could be a "canary in the AI coal mine" as more AI hyperscalers get set to report earnings and guidance next week.
But, as we've also been writing lately, this doesn't look like a panicked market environment, either. Sure, there's bad news. And Big Tech stocks – which have been due for a pullback – are seeing just that. But even today wasn't an "everything down" day. Rotation is afoot.
Energy stocks were higher, as we already discussed, but so were industrials, healthcare, and utilities. More than 200 stocks in the S&P 500 closed higher, and the equal-weight S&P 500 was only down 0.4%.
When we write that the U.S. benchmark index is influenced by just a handful of giant companies "for better or worse," today's action is what we mean. The AI trade has been overcooked in the short term, but there are other places to put your money.
In a blistering bull market, when everything is going up, anyone can look like a genius. But in volatile times when money is rotating around the market, true diversification and strategy matters.
That means owning shares of high-quality companies and buying them at good prices... having exposure to "boring" sectors like healthcare and "hard assets" like real estate and gold... and avoiding the bad "eggs" – like overvalued stocks trending in a bearish direction.
That's as worthy a strategy as any to limit big drawdowns and keep compounding your wealth, especially now.
New 52-week highs (as of 7/22/26): AXA (AXAHY), Alpha Architect 1-3 Month Box Fund (BOXX), Kayne Anderson Energy Infrastructure Fund (KYN), Omega Healthcare Investors (OHI), Plains All American Pipeline (PAA), Philip Morris International (PM), and Travelers (TRV).
In today's mail, a request for an old article about cholesterol by our Dr. David "Doc" Eifrig... Do you have a comment or question, gripe, praise, or suggestion? As always, e-mail us at feedback@stansberryresearch.com.
"Hi, I remember an excellent article by Doc Eifrig about the 'Cholesterol Myth'. I couldn't find it on the Stansberry website. Could you send me a link to this article or a pdf. Thank you." – Subscriber Heinz W.
Corey McLaughlin comment: I think you're referring to this article, which appeared in an early issue of Doc's free Health & Wealth Bulletin e-letter. I just read it myself, so thanks for bringing it up. And for anyone who doesn't already get Doc's free daily letter, click here to check it out and sign up to receive it. It's full of great finance and health tips.
All the best,
Corey McLaughlin with Nick Koziol
Baltimore, Maryland
July 23, 2026
