Folks,
Wall Street can't seem to catch a bid. Six weeks of chop, fake-outs, and rallies that die on contact with the next Middle East headline have left the major indexes running in place. That's the story of July in a nutshell: markets that want to go higher but keep getting pinned by a war that refuses to end.
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The Momentum Problem
Coming out of a monster Q2 — powered by AI enthusiasm and 20%-plus earnings growth — the S&P has essentially stalled since the US-Iran ceasefire collapsed. Every green open gets sold. Every oil headline caps the tape.
- The tape tells the tale — On July 13, stocks slid as the US and Iran escalated, with both the Nasdaq and the S&P closing firmly in the red. Relief rallies on diplomacy rumors keep fizzling within a session or two.
- Oil is the ceiling — Brent crude smashed through $100 per barrel on Thursday, July 23, closing at $100.69 — its first triple-digit print since May 26. WTI settled around $92.19. Crude has ripped more than 30% higher in July alone.
- The fear gauge is waking up — The VIX jumped on July 23 to close near 18.70, up from sub-12 readings earlier this month but nowhere near spring's panic highs above 35.
What's Actually Happening
Here's the part behind the curtain. The oil market isn't fighting one war — it's fighting three at once, as RBC's Helima Croft told CNBC. Iran has been hammering tankers around the Strait of Hormuz to force ships through its territorial waters. Its Houthi allies opened a second front, firing on two Saudi tankers in the Red Sea after declaring a maritime blockade of the kingdom. And in Europe, Ukraine has hit more than 150 vessels tied to Russia's shadow fleet.
The June 17 memorandum of understanding between Washington and Tehran to reopen Hormuz briefly revived traffic — then collapsed. Marisks CEO Dimitris Maniatis called it the worst phase of the conflict yet for merchant shipping. IMO data shows 61 commercial ships attacked in the Gulf region since March 1, with at least 17 seafarers killed. At least a dozen tankers were struck this month alone around Hormuz.
- Chokepoints stacking up — The Saudis rerouted millions of barrels a day through a pipeline to a Red Sea terminal to dodge Hormuz — Kpler data shows those exports surged to 3.5 million bpd in June. Now the Houthis are threatening that escape hatch too.
- The "no way out" trap — Croft warned Middle East seaborne oil faces a scenario with no clean exit. Kpler's Matt Smith noted supertankers can't cross a fully loaded Suez, forcing an eight-week roundtrip workaround around Africa.
- Europe's front is bleeding too — The Caspian Pipeline Consortium halted loadings at Novorossiysk after drone strikes, jeopardizing the roughly 80% of Kazakhstan's crude — around 1.7 million bpd in June — that flows through it. Ukraine has knocked more than half of Russia's refining capacity offline, and Moscow banned diesel exports on July 8.
- The pump is feeling it — AAA's national gas average jumped 15 cents in a week to $4.09 by July 23, with most states now above $4.
Winners and Losers
The split screen is stark. Energy and defense are printing while anything fuel-sensitive is getting torched.
- Energy majors are the port in the storm — ExxonMobil and Chevron have been steady outperformers all year, with the XLE energy ETF climbing through July as crude rips.
- Defense is on fire — Lockheed Martin surged on July 23 after raising guidance on Pentagon restocking, dragging RTX higher alongside it. Lockheed's backlog swelled to $230.4 billion as Iran and Ukraine deplete weapons stockpiles.
- Airlines got clipped — American, United, Delta, and JetBlue all sold off on the fuel spike. United now sees nearly $6 billion in extra fuel costs for 2026.
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What It Means
The real problem for the bulls isn't the war itself — it's what it's doing to the Fed math. Instead of pricing rate cuts, markets are now pricing rate hikes: the 10-year Treasury yield climbed to 4.71% on July 23, its highest since January 2025, and traders see meaningful odds of a hike as soon as the July 29 meeting.
Earnings, meanwhile, are actually strong — Q2 S&P profits are tracking north of 20% growth — but they're getting drowned out by war headlines and cautious guidance.
The Forward View
History offers perspective here. Oil-shock scares that don't tip the economy into recession tend to resolve fast — LPL Research's study of 20 major military conflicts since WWII found drawdowns were typically modest, with the average time to reclaim pre-event levels under 39 days. Per Capital Group data, markets have historically posted gains in the year after an oil supply shock going back to 1990 — and stronger returns over the following two years. The 1990 Gulf War pullback between July and October was fully recovered within months once Kuwaiti oil came back online.
For now, markets are stuck in the waiting room — unable to rally with conviction until Hormuz clears, unwilling to crater while earnings hold. These cycles come and go. The catalysts to watch into the back half of 2026: any real de-escalation in the Gulf, the Fed's July 29 call, and whether crude can cool back below $90. Until one of those breaks, the chop likely continues.
Anyways...
That's all for now!
Until Next Time,
-ZT Team
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