Diplomacy Hopes, Strong Earnings Give Early Lift
Published as of: July 21, 2026, 9:12 a.m. ET
(Tuesday market open) Optimism that faded yesterday returned this morning as stocks rose on fresh hopes for diplomatic progress with Iran. In an early rally led by chips, the market appeared to ignore warning signs from rising oil prices and Treasury yields, though volatility eased.
Today's move follows reports that Iran once again expressed openness to talks. Support also came from earnings thanks to rallies in General Motors (GM) and 3M (MMM) after the industrial giants topped expectations and issued upbeat guidance. While not every company reporting this morning rallied, almost all surpassed consensus. "Earnings overall are strong so far but pay attention to companies that beat sell-side consensus but underperform buy-side expectations," said Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research (SCFR).
Major indexes ran swiftly out of the gate Monday, only to temper their pace on reports that President Trump was considering widening the war and threatening to retaliate for the deaths of U.S. service members. New tariffs Trump imposed on Canada also weighed, and the Financial Times reported today he's pondering fresh tariffs against dozens of countries, raising fresh inflation concerns. The S&P 500 Index is down three straight sessions.
Three things to watch
- Earnings heat up with Alphabet looming: About 15% of S&P 500 companies report this week. Tomorrow is an especially crowded day, with Alphabet (GOOGL) and Tesla (TSLA) following the close. Alphabet looms especially large as investors fret about AI spending plans. Some worry that so-called "hyperscalers" are taking on too much debt to build data centers, and others are concerned spending could slow. Chip stocks recently plunged 20% from June highs, partly on that fear. That makes Alphabet's capital expenditure forecast a key metric. Shares climbed yesterday on news that Alphabet plans to introduce a more efficient AI chip, reinforcing ideas that hyperscalers have vertical integration in mind to make them less dependent on outside supplies amid shortages. The new chip would permanently embed parts of Gemini's architecture into the silicon, Alphabet said, telling CNBC: "By co-designing our hardware and software from the ground up, we ensure our systems are integrated and highly optimized for real-world workloads."
- Beijing elbows in on U.S. AI dominance: China's claims of success building competitive AI models recently became another concern swirling around the volatile chip sector, reminding some of the 2025 "Deep Seek" sell-off. China appears to be taking a different tack from the U.S., offering AI models for wide use ("open source") rather than as proprietary technology. This has some investors concerned that U.S. companies could turn to cheaper Chinese models for less advanced AI needs as costs continue growing. The costs are taking a toll, with S&P Global downgrading Oracle's (ORCL) debt earlier this month to one step above junk status. This turns the focus to free cash flow as competing hyperscalers report in coming weeks. Chinese competition isn't a done deal, as Chinese models aren't widely proven. Even so, cheaper open source technology, even from China, might be tempting amid growing debt levels for U.S. companies heatedly pursuing AI. Also, OpenAI and Anthropic executives warned the White House that new Chinese AI models represent large security risks, The Wall Street Journal reported.
- Credit spreads creak higher, but remain tight: Credit spreads are drifting upward lately, though investment grade spreads remain low by historic standards as corporate health generally looks solid. The recent climb could reflect all the borrowing taking place in tech, which has raised supplies. "The credit markets are still performing well, but supply concerns could weigh on short-term performance," said Collin Martin, head of fixed income research and strategy at SCFR. "Hyperscaler issuance has been high and tech spreads have adjusted higher. This could pose a risk to spreads over the near-term." At this point, the yield on investment grade bonds tracked by Bloomberg is about 76 basis points above Treasury yield, up from below 73 a month ago but down from 78 on December 31. The historic average is 130. Credit spreads sometimes rise before the stock market begins to show signs of weakness, so they can be an important indicator.
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On the move
- General Motors (GM) drove to 1.7% gains in early action after earnings and revenue topped expectations and the company raised fiscal year 2026 guidance to a range that now centers at the mid-point of the FactSet consensus. Premium truck pricing and cost cuts helped boost the balance sheet last quarter, Bloomberg reported.
- Northrop Grumman (NOC) lost 3% before the open despite better-than-expected quarterly earnings and revenue and a rise in guidance. Shares approached today down 8% for the year, but defense firm stocks have been shaky on worries that Democrats could regain the House in November's elections and cut defense spending, The Wall Street Journal noted.
- 3M (MMM) surged almost 6% ahead of the open, lifted by strong earnings and a rise in fiscal year guidance to levels above consensus. This marked the 14th straight quarter the company has beaten FactSet's consensus for earnings, and 3M cited continued momentum.
- Chip and chip infrastructure stocks led gains again this morning with 5% or better climbs for Sandisk (SNDK), Western Digital (WDC), SK Hynix (SKHY), Micron (MU), Corning (GLW), Applied Materials (AMAT), Lumentum (LITE), and Intel (INTC), which reports late Thursday.
- Software stocks appeared out of favor with investors early, with 4% losses for Salesforce (CRM) and Adobe (ADBE) after Morgan Stanley downgraded both.
- Crypto-related stocks including Circle Internet Group (CRCL) and Coinbase (COIN) built on Monday's gains early as bitcoin futures climbed, a possible sign of "risk-on" sentiment returning.
- The 10-year Treasury note yield topped 4.6% early today, only a few basis points below this year's peak of 4.68% and up 20 basis points from recent lows. "Fiscal policy and Treasury issuance continue to pressure longer maturities," said Cooper Howard, director of fixed income research and strategy at SCFR. Consumer stocks fell Monday as yields rose.
- By late Monday, about 61% of S&P 500 stocks traded above their 50-day moving averages, a slight dip in breadth from recent highs near 70% and perhaps a sign that market strength is turning narrower.
- Odds of a July Federal Reserve rate hike were 14% by early Tuesday, according to the CME FedWatch Tool. Chances of a hike by September were 64%.
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Chart of the day
Data source: S&P Dow Jones Indices. Chart source: thinkorswim® platform.
Past performance is no guarantee of future results.
For illustrative purposes only.
Technically, Monday was a disappointing day for bulls given that the S&P 500 Index (SPX—candlesticks) climbed above 7,500 psychological resistance around midday but closed below it for the second straight session. It's now down three days in a row and below its 50-day moving average (blue line), a line it's generally stayed above since April. The 100-day moving average (green line) remains well below. Meanwhile, momentum seems to be slumping as the Relative Strength Index (bottom chart) fell to 47 on Monday. That's down from July highs of 60 and near one-month lows.
The week ahead
Check out the investors' calendar for a summary of the top economic events and earnings reports on tap this week.
July 22: Expected earnings from GE Vernova (GEV), Philip Morris (PM), AT&T (T), CME Group (CME), Alphabet (GOOGL), Tesla (TSLA), Texas Instruments (TXN), IBM (IBM), ServiceNow (NOW), and CSX (CSX).
July 23: ECB rate decision and expected earnings from RTX (RTX), T-Mobile (TMUS), Thermo Fisher Scientific (TMO), Union Pacific (UNP), Blackstone (BX), Lockheed Martin (LMT), Freeport McMoRan (FCX), Comcast (CMCSA), Honeywell (HON), Intel (INTC), SAP (SAP), and Newmont (NEM).
July 24: June new home sales and expected earnings from American Express (AXP), NextEra Energy (NEE), Verizon Communications (VZ), and HCA Healthcare (HCA).
July 27: June durable orders, and expected earnings from Nucor (NUE).
July 28: June consumer confidence and expected earnings from Coca-Cola (KO), Boeing (BA), Corning (GLW), United Parcel Service (UPS), Sherwin-Williams (SHW), Illinois Tool Works (ITW), Royal Caribbean Cruises (RCL), Visa (V), Seagate (STX), Waste Management (WM), Mondelez (MDLZ), Ford (F), and Teradyne (TER).
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