A preface to the newsletter: My wife Mikaela and I celebrated our Baby Shower yesterday and I want to say a very special THANK YOU to everyone that attended or sent gifts and well-wishes. It's events like these that remind me just how fortunate we are to be surrounded by people who love us and share our excitement for our upcoming new addition to the family.
In this week's newsletter I cover the crash in Alphabet and Tesla stocks and why the market's reaction tells us something important about how investors are thinking about the AI spending boom. I also touch on the continued oil surge and recent reapplication of global tariffs as sources of pessimism for the outlook on inflation. In the Personal Finance section this week, as I promised, I wrap up the annuities series with a look at fixed-indexed annuities and indexed universal life insurance, which are some of the most expensive and complex financial products you can buy.
For our Longevity Science Spotlight this week I am keeping with the theme of "how to get a better night's sleep" and reviewing an article on Sleep Medications: types, effectiveness, and risks.
Lastly, on a more personal note relating to my financial planning practice - my wife and I are expecting our first child in September. There are many benefits to running my own practice except that I cannot take a prolonged leave of absence, so instead I will be scaling back my hours for the first couple of months until we get settled into a routine. My current clients are always my top professional priority, therefore I will be pausing taking on any new clients after August 1st in order to manage my workload once the baby arrives. If you, or anyone you know, are considering inquiring about becoming a client of mine, then please reach out before the August 1st deadline.
As always, please don't be shy about sharing feedback and please feel free to forward this on to anyone else who might be interested in reading it.
Have a nice week ahead,
Kevin
Stocks
It was another rough week for the stock market, particularly in tech stocks. The S&P 500 fell approximately 0.9% for the week, and the Nasdaq dropped about 2.9%. The Dow held up somewhat better, falling about 0.3% for the week. The selling was concentrated primarily in the tech sector following Alphabet (Google) and Tesla's earnings reports Wednesday morning. Tesla lost close to 15.5% for the week and Alphabet fell roughly 9%. For a broadly diversified investor, the week was mildly negative, whereas it was considerably more painful for anyone concentrated in the Magnificent 7 tech stocks.
Bonds
Bonds lost a little this past week, falling roughly 0.4%. The 10-year U.S. Treasury yield (the benchmark for risk-free bonds) climbed to approximately 4.67% by week's end. This is notable because that's the highest level since President Trump took office in January 2025, and it was driven almost entirely by the surge in oil prices. When energy costs rise sharply, bond investors price in higher future inflation, which pushes yields up and bond prices down. The Federal Reserve meets this Tuesday and Wednesday (July 28-29) and the market largely expects the Fed to hold rates unchanged in the current 3.50% to 3.75% range. I imagine that the investing world will be hanging on Fed Chair Kevin Warsh's every word trying to decipher whether rates will rise later this year.
Oil
Oil continues to be the one of the main drivers of the markets. WTI crude closed Friday at approximately $89 per barrel and Brent crude touched $100 per barrel (WTI and Brent are different crude oil type/price benchmarks), however they seem to be pulling back some over the weekend. To put the oil move in context: WTI crude was near $69 per barrel six weeks ago when the original Iran ceasefire was put in place. It has since risen more than $20 per barrel as the conflict has escalated through 13 consecutive nights of U.S. airstrikes and Iranian retaliation. The reclosure of the Strait of Hormuz, the threatening of the Red Sea route, and historically low levels of global strategic petroleum reserves are causing oil prices climb back towards the May highs. Every dollar of that gain is a slow-motion pressure on inflation, not just for gasoline prices, but for the greater economy as a whole - the price of oil affects everything.
Alphabet and Tesla beat on revenue, but missed on what matters most
On Tuesday evening, two of the most closely watched earnings reports of the quarter landed simultaneously. Alphabet (Google's parent company) reported Q2 revenue of $119.8 billion, beating Wall Street's estimate of $116.9 billion comfortably. Google Cloud revenue surged 82% to $24.8 billion, an extraordinary number. Tesla also reported record Q2 revenue of $28.24 billion, up 26% from a year ago, also ahead of expectations.
So why then did Alphabet fall 9% and Tesla fall more than 15% in the days that followed? The reason: investors turned immediately to the cash flow statements, and what they found there is the real story.
Alphabet spent $44.9 billion on capex (capital expenditures) in a single quarter, more than double what they spent a year ago. That capex spending exceeded the company's operating cash flow for the quarter, producing what is, for Alphabet, an unprecedented outcome: negative free cash flow of nearly $6 billion. It is the first time in Alphabet's history that the company has spent more money than it generated. The company also raised its full-year capex guidance to as much as $205 billion and told investors to expect spending to "increase significantly" in 2027. Tesla reported a similar pattern: record revenue, but earnings per share that fell 18% from a year ago and free cash flow that turned negative by roughly $1.1 billion, compared to positive $146 million in the same quarter last year. That's as if you received a raise at work and then went and purchased a new home with a mortgage you can't afford. The increased income isn't sufficient to offset the increased expenses, making the situation unsustainable.
I have been noting for several weeks that the market is applying a new lens to technology earnings, looking past revenue and net income and instead toward cash flow. Samsung, IBM, and now Alphabet and Tesla have all delivered the same result recently: strong revenue numbers but with negative cash flows, resulting in sharp selloffs on the news. I believe what we are seeing is a form of scrutiny that investors are beginning to apply to the AI investment cycle. The question is no longer "is AI spending happening?" The question is "when will we get to see a return on all of this capex spending?"
Oil pushes toward $92, and the inflation story just got harder
The Iran conflict continued to escalate this week, and I'm increasingly feeling like we are in the movie Groundhog Day as I write this. Crude hit a high near $92 per barrel mid-week before pulling back on reports that Pakistan may be attempting to broker preliminary talks between Washington and Tehran again. That Friday pullback was welcome and has continued into the weekend, but it does not change the underlying situation.
Oil at $89 per barrel (and potentially higher) changes the calculus for inflation in a significant way. The June CPI report released last week looked encouraging precisely because energy prices had fallen sharply in June. That window is now closed. July's energy costs will be substantially higher than June's, and if oil remains at current levels through August, the August reading will look worse still. I expected inflation in the second half of 2026 to be complicated and the oil market is delivering on that expectation ahead of schedule. The 10-year Treasury yield climbing to 4.67% reflects this: investors are not betting on a rate cut anytime soon.
Just in case oil prices weren't inflationary enough on their own, President Trump announced new tariffs on more than 60 of our trading partners
On Thursday, the Trump administration announced a fresh round of tariffs covering more than 60 of America's trading partners, with rates ranging from 10% to 12.5% on imports from those countries. To add a semblance of legitimacy, the administration characterized the tariffs as a response to inadequate enforcement of forced labor (slavery) bans by trading partners.
Let's not forget, these are replacement tariffs for the ones that the Supreme Court ruled were unconstitutional. Thursday's announcement is the administration's most sweeping effort to restore broad-based tariff coverage on a firmer legal footing. The countries affected include virtually all of America's major trading partners across Europe, Asia, and the Americas, though the 10-12.5% rates are lower than those originally proposed on "Liberation Day". Canada in particular was hit with 50% tariffs on a range of goods, and Brazil faces a 25% tariff on all imports, effective immediately.
I want to be direct about the importance of tariffs for inflation. Tariffs are a form of sales tax that often gets passed through to the end consumer. Higher import costs on goods from 60 countries feed directly into what American businesses pay for inputs and what consumers pay at the register. The combination of high oil prices and a broad new layer of taxes is a difficult backdrop for anyone hoping for costs to come down. I highly doubt inflation is heading meaningfully lower before year-end under these conditions.
"The goal is to invest [capex] as long as we see an attractive return on that investment." - Sundar Pichai, CEO of Alphabet, speaking on this past week's Q2 2026 earnings call
Pichai said this in response to investor questions about Alphabet's decision to raise its 2026 capex guidance to $205 billion. To put that spending number in context, that is more than the GDP of many developed nations... and he warned that 2027 spending would increase significantly beyond that! He said it confidently, he meant it genuinely, and he is probably right that in the long run the massive spending will generate real returns for Alphabet.
But here is what the statement leaves out: an "attractive return" is not measured in revenue growth or technology leadership or market share - it is measured in free cash flow. Free cash flow is what remains after a company pays its operating expenses and capex. It is the purest signal of whether a business is actually generating wealth or just moving money around. If a company earns $39 billion in operating cash flow and spends $45 billion on data centers, servers, and AI chips, the result is negative $6 billion in free cash flow. The company has not earned anything, it has lost $6 billion. And to stay in business, it must borrow more money, sell additional shares of stock, or do both - all of which depletes the value for current shareholders.
To be clear, this is not a knock on Alphabet. The company may well be right that this spending will generate extraordinary returns over the next decade. It is simply an observation that "attractive return on investment" is very much in the eye of the beholder, and the free cash flow statement is the lens through which investors assess that attractiveness. Currently Alphabet's cash flow statement is starting to look a little ugly because the company is, for the first time in its history, spending more than it is earning.
For my clients, the lesson is this: when evaluating any investment, financial product, or business, look at what is remaining after expenses. Revenue can be managed and revenue growth can be financed, but free cash flow is far harder to manufacture. It is the difference between whether the business model is working or whether someone is simply trying to convince you that it will work eventually.
Annuities 301: Fixed-Indexed Annuities and Hybrid Life Insurance
The Fine Print Behind the Best-of-Both-Worlds Pitch
Over the past two weeks I have walked through fixed annuities (which pay a guaranteed interest rate) and variable annuities (which invest in mutual funds for the potential for higher growth). This week I want to cover fixed-indexed annuities (FIAs) and indexed universal life insurance (IUL). These are products that sit in between those two categories and share a similar marketing pitch: participate in market gains without risking your principal. At face value it is an appealing promise. However understanding what it actually delivers, and at what cost, is what separates the smart investor from the dumb money. Always remember these two idioms when evaluating investments: risk equals return, and there's no such thing as a free lunch.
What is a fixed-indexed annuity (FIA)?
Like a fixed annuity, a fixed-indexed annuity (FIA) is a contract sold by an insurance company that purports to protect your principal, i.e. your account value cannot fall below zero as a result of market performance. But unlike a fixed annuity, which credits you a specific guaranteed interest rate, an FIA credits interest based on the performance of a market index, typically the S&P 500. If the index goes up, you receive a portion of that gain, up to a certain limit. If the index goes down, you receive zero (not a loss). That combination is the core of the FIA value proposition: a floor on losses combined with some market-linked upside.
How FIA interest crediting actually works
The crediting details matter enormously, and this is where many buyers are surprised (usually after buying the annuity). FIA contracts use several different mechanisms to determine how much of the gain on the index you actually receive:
The participation rate determines what percentage of the index's gain you are credited. If your FIA has a 70% participation rate and the S&P 500 gains 10% in a year, you receive 7%.
The cap rate sets a maximum on what you can earn regardless of index performance. If your cap is 9% and the S&P 500 gains 25% (as it did in 2019, 2021, 2023 and 2024), you still only receive 9%.
The spread (sometimes called a margin or asset fee) works in reverse: the insurance company keeps the first X% of the index gain, and you receive everything above that. A 3% spread against a 10% index gain means you receive 7%.
Any of these mechanisms can appear in the same FIA contract.
What FIAs do not tell you upfront
The most important hidden cost that almost no one mentions in the sales presentation is that you do not receive dividends. The index your FIA tracks is almost always a price-only index, not a total return index. Dividends currently account for roughly 1.3% to 1.5% of the S&P 500's annual return. Over 20 years, the difference between receiving and not receiving dividends compounds significantly. You are giving that up in exchange for the floor. That is not necessarily a deal breaker, but it is a real cost that should be factored in for consideration.
FIAs also carry significant surrender charges, which are fees that you have to pay if you want to get out of the annuity contract. These often last for 7-14 years from the purchase date, and although they often decline over time, they can start as high as a 12% charge in year one. If you need access to your money, such as for a medical emergency, a major expense, a change in your financial situation, then the fees to get out can be onerous.
Also sales commissions on FIAs are typically 6 to 8%, among the highest commission paying products in the financial world, and why you frequently see them being promoted aggressively. Forget about finance for second and just think about this logically: if a product pays a huge commission to the salesperson and charges a draconian fee if the customer wants to return it, is it really a good idea to buy it? Why would the insurance company need to employ those incentives if it was such a good deal for the customer?
When an FIA might make sense
An FIA is most appropriate for someone who emotionally cannot tolerate any decline in principal but wants some exposure to stock market growth. It is also critical that the investor has a long enough time horizon (10 years+) to allow the surrender charges to expire and benefit from the long term compounding interest of the stock market. For a young, conservative investor who would otherwise be only investing in CDs or a bank savings account, a competitively structured FIA can be a reasonable alternative, provided the caps and participation rates are meaningful. It's important to keep in mind that the U.S. stock market has historically returned around 10% annually, and any cap on an FIA below that amount is effectively the same as a fee on investments.
Indexed Universal Life insurance (IUL)
An indexed universal life (IUL) policy applies the same index-linked crediting concept as a FIA, but applies it to a life insurance policy. In an IUL your life insurance premium payments fund both a death benefit and a cash value account. A portion of your premium goes to pay for the cost of insurance (COI) and the remaider is deposited in a cash value account. That cash value grows (or doesn't) based on stock market index performance subject to the same caps, participation rates, and floors as an FIA. The marketing pitch is often "tax-free retirement income," referring to the ability to take loans against your policy's cash value without triggering income tax, which is a legitimate benefit of permanent life insurance.
The drawback is what happens inside the policy over time. Life insurance policies charge a cost of insurance (COI) each year, and that cost increases as you age. In your 40s the cost is manageable. By your 60s and 70s though, COI charges can become significant enough to erode the cash value unless the policy has been funded generously throughout your lifetime. If the cash value falls too low, the policy can lapse, and a lapsed policy with loans outstanding can create a large, unexpected tax bill and leave no life insurance death benefit for your beneficiaries. IUL illustrations provided by salespeople are often based on optimistic assumed crediting rates that may not be achieved in reality, particularly if the stock market declines or cap rates deteriorate.
An IUL can make sense for someone who meets all of the following criteria:
a high-income earner who has maxed out every other tax-advantaged retirement account,
has a legitimate need for life insurance,
will be in a high enough tax bracket in retirement for the tax-free loan feature to be meaningful,
and has the discipline to liberally fund the policy for decades.
For most people, those conditions are rarely all present simultaneously. Given the the combination of complexity, fees, and risk of the policy lapsing, I believe that most investors should approach buying an IUL with considerable caution.
The bottom line
FIAs and IULs are complex financial tools that work well primarily in specific situations. They are also among the most aggressively marketed and highest-commissioned financial products available, and the complexity of their terms makes it easy to buy something you do not fully understand. Before signing an FIA or an IUL contract, I would encourage you to pause and read all of the fine print in detail. Better read yet, read it twice and highlight anything that you don't understand. Then go back to your insurance salesperson and ask them to explain those details in plain English. If you don't walk out of that meeting feeling like you have a confident understanding of the costs, caps, and conditions in the contract, then that alone should be reason enough not to sign it.
A different way to think about agency in long term health & philanthropy
The Science of Sleep Drugs
Last week the Longevity Science Foundation covered the fundamentals of sleep and healthspan: duration, regularity, and treating sleep apnea as a genuine longevity risk. This week they follow up with a question many readers have probably asked their doctors: do sleep medications actually help, and are any of them safe to take long-term? The short answer is that sleep drugs can relieve symptoms, but none have been shown to extend lifespan, and some of the most commonly prescribed ones carry real risks that are worth understanding.
The oldest and most widely prescribed sleep medications: benzodiazepines (such as temazepam) and the so-called Z-drugs (zolpidem, zopiclone, eszopiclone) — work by broadly sedating the brain. They can help you fall asleep faster in the short term, but with extended use your body adapts, dependence can develop, and stopping often causes rebound insomnia. More concerning from a longevity perspective: large population studies have consistently linked regular use of these medications to higher rates of falls, fractures, and all-cause mortality, particularly in older adults. The American Geriatrics Society's Beers Criteria, the authoritative clinical guidance for older adult prescribing, recommends avoiding these drugs when possible because of fall risk, cognitive side effects, and delirium. These are not tools for chronic insomnia management.
A newer class of medications called dual orexin receptor antagonists (DORAs) — including suvorexant, lemborexant, and daridorexant, takes a fundamentally different approach. Instead of broadly sedating the brain, DORAs selectively turn down the brain's wake signal. Clinical trials show they improve both falling asleep and staying asleep, and controlled driving studies find less next-morning impairment than with older sleeping pills. Dependence risk also appears lower. Early lab research found that a single dose of suvorexant briefly reduced levels of Alzheimer-related proteins in spinal fluid - an intriguing signal, though not proof of dementia prevention. If a prescription sleep medication is genuinely needed, DORAs are currently the preferred choice, ideally used alongside CBT-I with a plan to taper over time.
For people who primarily struggle with staying asleep rather than falling asleep, a very low dose of an older antidepressant called doxepin (1 to 6 milligrams) has solid clinical trial support and a generally favorable safety profile, including in older adults. Melatonin is best used as a timing tool for night owls or travelers with jet lag rather than as a general sedative; effects on chronic insomnia are modest, and a large 2025 observational study raised a caution flag about long-term high-dose nightly use. Over-the-counter antihistamines like diphenhydramine are weak for chronic insomnia and carry anticholinergic side effects that make them particularly inappropriate for older adults.
The overarching message from this piece is the same one the LSF has been building across this sleep series: the behavioral interventions (CBT-I), consistent sleep schedules, treating underlying disorders - are the best first-line treatment. Medications are useful assistants in specific situations, not substitutes for addressing what is actually disrupting sleep.
To learn more, go to: The Science of Sleep Drugs
This was a week where the market did something important: it looked past the headline numbers and read the fine print. Alphabet posted some of the best revenue growth numbers in its history and Tesla delivered a record quarterly sales figure. In the past, those numbers would have caused the stock to skyrocket. Instead, analysts turned to the cash flow statement, saw what AI spending was actually costing, and hit the sell button. Perhaps Wall Street is starting to wise up and dig deeper into the data, or perhaps investors are just getting tired of the AI story and impatient to see a return on the astronomical amount of spending.
The same analytical discipline is what I hope this three-week annuities educational series has equipped you with. Fixed annuities, variable annuities, and fixed-indexed annuities all carry headline pitches that sound appealing. Guaranteed income, stock market returns without the downside, tax deferred growth, tax-free retirement income - just to name a few. Each of those promises contain a kernel of truth and sometimes they do work out well for some investors. However, what I have tried to do over these last three weeks is give you the tools to look past the headline and ask the right questions: what am I actually paying, what return is guaranteed versus hypothetical, and what am I giving up in exchange for those promises? In a nutshell, you should always ask "what's the catch?" when someone is offering you a deal that seems too good to be true. And if you don't understand the answer, then walk away.
Although I do not sell any financial products, I also do not tell my clients to avoid them categorically - certain products make sense in the right circumstances. What I do tell my clients though, is to apply the same standard of scrutiny to a financial product that a professional investor applies to an earnings report: the headline is where the story starts, not where it ends.
Every floor has a ceiling. Make sure you know where yours is.
Have a nice week ahead!
Kevin