U.S. equities closed the week on a positive note, with the Nasdaq Composite leading the advance, but the overall market rally remained heavily dependent on a handful of mega-cap technology names. As investors now turn their attention to the upcoming July employment report, questions about the sustainability of the rally and the potential for a September rate hike are coming to the forefront.
The Nasdaq Composite climbed 1.6% this week, while the S&P 500 gained 1.0% and the Dow Jones Industrial Average rose 1.0%. In contrast, the small-cap Russell 2000 edged up by less than 0.1%, highlighting a significant divergence. The 1.55 percentage point gap between the Nasdaq and the Russell 2000 underscores the market's continued reliance on large-cap technology firms, a trend that has been a defining feature of the recent rally.
Weekly Market Performance
- S&P 500: Closed at 7,489.72, up 0.7% on Friday, gaining 1.0% for the week, and up 9.4% year-to-date.
- Dow Jones Industrial Average: Closed at 52,485.03, adding 0.5% on Friday, rising 1.0% for the week, and up 9.2% year-to-date.
- Nasdaq Composite: Closed at 25,373.85, climbing 1.0% on Friday, adding 1.6% for the week, and higher by 9.2% year-to-date.
- Russell 2000: Closed at 2,931.34, falling 0.5% on Friday, edging up less than 0.1% for the week, but advanced 18.1% year-to-date.
Despite the weekly gains, the recovery failed to reverse the tech losses seen in July. The Nasdaq dropped 3.2% over the month, while the S&P 500 remained nearly unchanged and the Dow gained 0.3%. The concentration of market leadership became even more evident on Friday, as the S&P 500 climbed 0.7%, yet decliners still outpaced advancers by a ratio of 1.3 to one. On the Nasdaq, 131 stocks hit new lows versus just 52 reaching new highs.
Drivers of the Week's Moves
Three trading sessions accounted for the bulk of the week's activity. On Wednesday, the S&P 500 fell 1.52%, the Nasdaq dropped 1.74%, and the Dow lost 2.19% as the Federal Reserve maintained its target range and three policymakers called for a hike, while renewed concerns about AI investment weighed on sentiment. Thursday brought a sharp reversal, with the S&P 500 jumping 1.66%, the Nasdaq surging 2.78%, and the Dow adding 1.19%, driven by Microsoft's strong results and an improved cloud outlook. Friday saw more moderate gains, with the S&P 500 up 0.70%, the Nasdaq up 1.00%, and the Dow up 0.53%, as an Amazon rally balanced Apple's losses.
Microsoft (MSFT) climbed 15.5% on Thursday, boosting its market value by close to $450 billion, after reporting that Azure's yearly revenue topped $100 billion and projecting next-quarter growth of nearly 45% excluding currency impact. Amazon.com (AMZN) surged over 15% on Friday, marking its fastest quarterly revenue increase in more than four years, which helped offset Apple's decline. Apple (AAPL) dropped 7.4%, wiping out about $359 billion, as the company faced supply issues and lowered its growth forecasts. The combined two-stock swing in Microsoft and Apple amounted to nearly $809 billion.
Amazon's results addressed a key aspect of the AI discussion. “Andy Jassy just put those fears to bed,” said Jake Dollarhide, CEO of Longbow Asset Management, in reference to worries over uncontrolled infrastructure outlays.
Rates and the Fed
Rates continued to provide a balancing force. The Federal Reserve, by a 9-3 vote, kept its target range steady at 3.50% to 3.75%. Core PCE inflation marked 3.3% for June, and the 30-year Treasury yield climbed to 5.2444% on Thursday, the highest since mid-2007. Fed-funds futures now show a 64% probability of a rate hike in September, and a Reuters early poll forecasts 83,000 additional jobs in July.
The upcoming week is packed with key economic data, including the July employment report on Friday, August 7, at 8:30 a.m. ET. A robust payroll figure could cement expectations for a September rate increase, while a significant shortfall could ease such bets but stoke worries about economic growth. With limited Fed communication, market reactions on Friday could become sharper.
Earnings Season Continues
Over a quarter of S&P 500 companies are set to report results next week, featuring leading names from the software, semiconductor, industrial, and pharmaceutical sectors. Notable reports include Palantir Technologies (PLTR), Caterpillar (CAT), Merck (MRK), Advanced Micro Devices (AMD), SpaceX (SPCX), and Eli Lilly (LLY). S&P 500 earnings, on an adjusted basis, are currently 29.3% higher compared to a year ago, providing a cushion if forecasts remain steady. “The earnings picture overall should provide stability,” said Yung-Yu Ma of PNC Financial Services Group.
Confirmation should next be seen in market breadth. Gains among small caps and favorable advance-decline figures would reinforce the rally. If the index moves higher but with limited participation, returns will remain concentrated in several large-cap stocks. Risks to the outlook include rising yields if payrolls exceed expectations, oil price climbs, or disappointing corporate guidance. Limited market breadth would amplify any downturn among major technology shares. Conversely, a significant shortfall in job creation could ease rate concerns but raise growth worries.
