The stock market rally had a powerful week, fueled by lower oil prices and Treasury yields and generally strong earnings.
The Dow Jones Industrial Average shot up 3% in last week’s stock market trading, while the S&P 500 index leapt 3.6%, both hitting record highs. The Nasdaq composite surged 5.2%, decisively reclaiming the 50-day line and getting close to early June peaks. The small-cap Russell 2000 gained 3.5%, just below all-time high levels.
Software, metals and biotechs were strong performers, along with decent gains among industrials, aerospace plays and retailers.
After last Friday’s weak jobs report, markets are now leaning against a September rate hike, as the yield curve flattened. The 10-year Treasury yield fell nearly nine basis points last Friday to 4.66%.
U.S. crude oil futures tumbled 7.7% to $78.18 a barrel for the week.
On the economic front, both the ISM manufacturing and services reports increased month-over-month (M/M), signaling continued expansion in both sectors.
The July employment report generated mixed reactions, with non-farm payrolls declining by 23,000 jobs. However, some economists viewed the report as evidence of improving labor productivity, potentially reflecting increased adoption of artificial intelligence (AI).
The iShares Expanded Tech-Software Sector ETF (IGV) soared 8.6%. The VanEck Vectors Semiconductor ETF (SMH) jumped 7.8% last week.
ARK Innovation ETF (ARKK) bolted 11.5% higher last week and ARK Genomics ETF (ARKG) sprinted 11.6%.
SPDR S&P Metals & Mining ETF (XME) rebounded 15% last week.
Shares of Palantir Technologies (PLTR) traded up 29% on Tuesday after reporting blowout earnings, revenue and guidance.
The CPI inflation report is due Wednesday, with PPI data the following day.
Cisco Systems (CSCO), Lumentum Holdings (LITE), Applied Materials (AMAT), Coherent (COHR) and Nebius (NBIS) are AI hardware earnings that are out this coming week.
Please click here for the Looking Ahead report from the Wells Fargo Investment Institute. Below are excerpts from that research.
Week in review: August 3-7
Economic news
- Labor market data suggested a modest cooling in hiring demand. Job openings fell 178,000 to 7.36 million in June, below forecasts of 7.45 million. ADP reported private payroll growth of 44,000, also below expectations of 65,000. Meanwhile, non-farm payrolls declined 23,000 in July, missing expectations for an 80,000 gain, pointing to a softer labor market. The unemployment rate was 4.1% in July, slightly better than the 4.2% expected.
- Hiring trends varied across sectors. Leisure and hospitality payrolls steeply declined 40,000 M/M while construction and manufacturing payrolls increased 22,000 M/M and 5,000 M/M, respectively.
- The participation rate, or the share of the population working or looking for work, fell to 61.4%. Excluding the pandemic, this figure remains near lows not seen since the 1970s.
- Business activity remained firm in July. The ISM Manufacturing Index rose to 55.6 from 53.3, well above expectations of 53.9, while the prices paid subindex increased to 71.1, signaling that pricing pressures remained elevated. Meanwhile, the ISM Services Index ticked higher to 54.1 from 54.0, pointing to continued expansion in the services sector.
- The U.S. trade deficit narrowed to $73.3 billion in June from $77.6 billion in May, as imports fell 1.8% to $388 billion, outpacing a 0.9% decline in exports to $314.7 billion. Declines in imports of capital goods and consumer goods, particularly computers and pharmaceuticals, contributed to the lower deficit.
- June construction spending unexpectedly declined 0.1% M/M, missing expectations for a 0.2% M/M increase, as elevated borrowing costs continued to weigh on activity.
- Weakness was concentrated in financial construction, with spending down 10.8% M/M. By contrast, AI related infrastructure remained resilient, with data center construction spending rising 7.0% M/M as companies continued investing in AI capabilities.
- Factory orders fell 0.3% M/M in June, below economists’ expectations for a 0.2% M/M increase.
Looking ahead to this week: August 10-14
U.S.
- This week‘s focus will be July inflation data, with the Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday. Attention will then shift to Friday’s retail sales report and the University of Michigan’s preliminary August consumer sentiment survey and inflation expectations.
- Also on deck are July small business optimism, existing home sales, the federal budget balance, and June business inventories. Investors will also watch U.S. – Canada trade negotiations ahead of the August 19 implementation of a 50% tariff on roughly $20 billion of Canadian imports.
- The U.S. Treasury will auction $125 billion in three-, 10-, and 30-year securities.
Asia
- In China, the focus will be July‘s money supply and the month’s foreign investment data.
- From Japan, watch July PPI, money supply, and preliminary machine tool orders, along with June current-account data.
- Elsewhere in the region, South Korea’s early August trade data, a key global trade gauge, will be released alongside July unemployment and export prices. In Australia, July business confidence, and foreign reserves will follow the Reserve Bank of Australia meeting earlier in the week.
Europe
- The highlight will be the eurozone’s second estimate of Q2 gross domestic product, (GDP) and preliminary employment data, along with June trade balance, and industrial production.
- From the U.K., look for preliminary Q2 GDP estimate and business investment, along with June industrial production, the Index of Services, construction output, and the visible trade balance.
- In France and Germany watch for finalized July CPI readings.
