Weekly Market Recap: AI Earnings Lift Stocks as Fed Uncertainty Pushes Yields Higher

Market Overview

Global markets closed July on firmer footing as investors navigated corporate earnings, continued scrutiny of artificial intelligence spending, and uncertainty surrounding the Federal Reserve’s next move.

U.S. equities advanced, with the S&P 500 gaining 1.06%, the Dow Jones Industrial Average rising 1.04%, and the Nasdaq Composite climbing 1.60%. Small caps were nearly unchanged, with the Russell 2000 adding just 0.05%. International benchmarks outperformed, as the MSCI EAFE Index rose 2.02% and the MSCI Emerging Markets Index gained 2.37%.

Strong cloud-computing results from Amazon and Microsoft helped ease concerns that heavy AI investment may not produce sufficient returns. Meta Platforms faced greater pressure after weaker cash flow raised questions about its elevated spending, but a broader rebound in chipmakers and momentum stocks helped support the major indexes.

Consumer discretionary led the S&P 500 sectors with an 8.3% weekly gain, followed by communication services at 5.4%. Rising interest rates weighed on rate-sensitive areas, with utilities falling 4.2% and real estate declining 2.2%. Value stocks continued to outperform growth, gaining 1.41% for the week and 20.67% year to date, compared with gains of 0.57% and 0.32%, respectively, for growth stocks. Energy remained the strongest sector for the year, up 34.7%.

International markets delivered mixed regional results. European equities posted modest gains as easing oil prices and stronger corporate guidance supported sentiment. Asian markets experienced greater volatility, including sharp swings in South Korean equities, while Chinese policymakers offered an encouraging tone but stopped short of announcing additional stimulus.

Fixed income markets came under pressure as longer-term Treasury yields moved higher. The 10-year Treasury yield rose from 4.69% to 4.75%, while the 30-year yield climbed from 5.16% to 5.27%. In contrast, the two-year yield declined from 4.33% to 4.28%, producing a steeper yield curve. The Bloomberg U.S. Aggregate Bond Index fell 0.12%, while high-yield bonds gained 0.18%.

Commodities weakened, led by an approximately 5% decline in West Texas Intermediate crude oil. Renewed negotiations between Washington and Tehran reduced immediate supply concerns, although reports of blocked tankers in the Strait of Hormuz limited the decline. Gold finished the week relatively flat but recorded its first monthly gain since February. The U.S. dollar weakened, while Japan intervened to support the yen after it traded near four-decade lows.

Federal Reserve Insights and Economic Roundup

The Federal Reserve held its target interest-rate range at 3.50%–3.75%, marking the fifth consecutive meeting without a policy change. The decision passed by a 9–3 vote, with three officials favoring a rate increase.

Chair Kevin Warsh reiterated the Fed’s commitment to bringing inflation under control but provided little guidance regarding how or when policymakers may adjust rates. The limited direction left investors uncertain about the Fed’s reaction function and contributed to a sharp rise in longer-term yields following the announcement.

The market’s response suggests investors remain concerned that keeping rates unchanged could allow inflation expectations to become less anchored. Unless upcoming economic data show a decisive slowdown, expectations for a potential September rate increase may remain elevated.

Second-quarter gross domestic product expanded at an annualized rate of 1.5%, below the 2.0% consensus estimate and slower than the first quarter. A surge in imports, particularly semiconductors, weighed on the headline calculation. However, consumer spending remained resilient, and AI-related business investment continued to provide support.

The Personal Consumption Expenditures report was broadly consistent with expectations, although a slight increase in core inflation reinforced the Fed’s cautious position. Together, the data presented a mixed picture of moderating headline growth alongside continued consumer activity and persistent inflation pressure.

The Week Ahead

Monday: Final manufacturing PMIs, ISM manufacturing, construction spending, and vehicle sales are due.
Tuesday: Trade, factory orders, JOLTS, and final durable-goods data will be released.
Wednesday: ADP payrolls, mortgage applications, final services PMIs, and ISM services take center stag
Thursday: Layoffs, productivity, labor costs, jobless claims, and wholesale data are scheduled.
Friday: July payrolls, wages, unemployment, labor-force participation, inflation expectations, and consumer credit close the week.