U.S. equities were little changed at midday on Friday, as strong earnings from AI-related names were offset by climbing Treasury yields and increased expectations for another Federal Reserve rate hike. The S&P 500 dipped 0.02%, while the Dow Jones Industrial Average slipped 0.06%. The Nasdaq Composite, however, advanced 0.19%, buoyed by gains in mega-cap technology stocks.
The yield on the benchmark 10-year Treasury note rose to 4.727%, its highest level since January 2025, while the 30-year bond yield reached 5.2584%, the peak since mid-2007. Market-implied odds of a September rate hike jumped to 69% following the release of the Employment Cost Index, which showed civilian compensation rising 0.9% in the second quarter, a 3.4% year-over-year increase. The Fed left its target range unchanged at 3.50%-3.75% on Wednesday, but three voting members dissented in favor of a quarter-point hike.
The market's narrow advance highlighted a clear preference for companies that are translating AI investments into immediate revenue growth. Amazon.com Inc. (NASDAQ:AMZN) surged 13.4% after its cloud unit, Amazon Web Services, reported a 37% increase in revenue, the fastest pace in four years. The company also raised its 2026 capital expenditure forecast by 10% to $220 billion, with most of its 2027 cloud capacity already booked. Despite a shift to negative free cash flow of $7.6 billion on a trailing basis, investors focused on the cloud momentum.
Microsoft Corp. (NASDAQ:MSFT) climbed 2.0% after Azure revenue grew 43%, beating the 39.98% consensus estimate. The company guided to 45% constant-currency growth for Azure in the coming quarter, reinforcing confidence in its AI-driven cloud business. Alphabet Inc. (NASDAQ:GOOGL) also advanced 4.7%.
In contrast, Apple Inc. (NASDAQ:AAPL) tumbled 9.4% after the company projected revenue growth of 9%-11% for the current quarter, below the consensus estimate of about 12%. CEO Tim Cook described component shortages as "very significant," raising concerns about supply chain constraints. Apple's fiscal third-quarter revenue rose 16% to $109.4 billion, with diluted EPS up 29% to $2.02, both record June-quarter figures, but the weak guidance weighed heavily on the stock.
The divergent performance of these mega-caps had a massive impact on market capitalization. Amazon added an estimated $341.8 billion in market value, while Microsoft and Alphabet contributed a combined $258.9 billion. Apple, however, erased $462.2 billion, leaving a net positive of $138.4 billion for the four companies combined. These provisional figures are based on real-time data as of 11:49 a.m. EDT.
"The market is no longer questioning whether AI demand is real," said Bill Birmingham of REX Financial. "The focus is now on observable revenue." This sentiment was echoed across trading desks, as investors rewarded companies that can demonstrate tangible AI monetization while punishing those with less clear near-term returns.
Market breadth remained negative, with decliners outnumbering advancers by a 1.18-to-1 ratio on the NYSE and 1.16-to-1 on the Nasdaq. The semiconductor index remained more than 16.7% lower for July, reflecting continued volatility in chip names. Small-cap stocks underperformed, with the iShares Russell 2000 ETF (NYSEARCA:IWM) down 0.94%.
As the month draws to a close, the cap-weighted S&P 500 and Nasdaq are on track for July declines, while the equal-weight S&P 500 is set for a fourth straight monthly gain. This divergence underscores the market's selectivity: AI investments are being rewarded, but only when they lead to immediate revenue gains. Rising yields and labor cost data continue to pressure valuations, and risks remain, including potential oil shocks, further yield increases, and Apple's supply issues affecting broader hardware supply chains.
