Markets Update - 7/31/26
A look at what happened today impacting US equity, Treasury, and selected commodity markets, and what to watch for next week
Quick Summary:
The S&P 500 opened the Friday session modestly higher, while the Nasdaq-100 was seeing larger gains, on the back of a continued push higher in Tech shares as discussed in the morning update.
But we would continue the recent run of more volatile sessions, falling into negative territory within the first hour, then rallying from there as Amazon and several other megacap growth names helped offset a 7.4% drop in Apple shares, its worst day in a year, and another rise in Treasury yields and oil prices.
At day’s end, the Nasdaq Composite led +1.0%, the S&P 500 gained +0.7%, the Dow Jones Industrial Average rose +0.5%, while the Russell 2000 lagged at -0.5%. For the week, the Nasdaq finished +1.6%, the S&P 500 +1.1%, the Dow Jones Industrial Average +1.0%, and the Russell 2000 was little changed at +0.1%.
The rally was again centered in megacap growth, but unlike Thursday it was not Technology carrying the market. Amazon jumped more than +15%, its best day since 2012 carrying the Consumer Discretionary sector to a +6.1% gain, while Alphabet (+6.8%) and Meta (+3.2%) helped Communication Services rally +4.6%.
Semiconductors added to Thursday’s sharp rebound early but the gains would fade with the SOXX Semiconductor index ending up just +0.1% after earlier in the session seeing gains of around 5%. It would end the month though down over 20%, its worst month since October 2008.
Elsewhere participation was not as strong with just four of the eleven S&P 500 sectors finishing higher, and the equal-weighted S&P 500 falling back -0.2% for a second day.
Economic data was lighter than Thursday. The Q2 Employment Cost Index was slightly firmer than expected (report coming), while the final July University of Michigan consumer sentiment index improved from June, although remained “historically weak”.
Treasury yields remained a key pressure point, with the 10-year yield rising to 4.75%, the highest close since January 2025, and the 30-year yield at the highest level since 2007, while WTI crude also rose again and finished July up more than 20%. Yields also rose at the shorter end as Fed rate hike expectations increased as Fed credibility concerns became a point of focus after the confusing press conference from Chair Warsh on Wednesday punctuated by statements today from the three dissenting Fed regional presidents (covered in the subscriber section).
Attention now turns to next week where we’ll get another round of US economic data culminating in the Employment Situation report Friday as well as one of the busiest weeks (by number of reports) of the Q2 earnings season.
Some market commentary:
“The worst of the positioning washout is probably behind us,” said Florian Ielpo at Lombard Odier Investment Managers. “On valuations, I would say they are more reasonable than a month ago, not cheap. So this is not the end of the AI trade, it is probably the end of its easy phase.”
“August books are thin, and thin books turn ordinary data into outsized moves,” said Lombard Odier’s Ielpo. “Expect more nervousness than the macro alone would justify.”
“While the messaging on inflation has been firm, investors are still trying to assess how that commitment will translate into policy decisions,” said Francisco Simon at Santander Asset Management. “The combination of a credible inflation objective, but less visibility on the path of policy decisions, could translate into higher volatility in rates markets.”
“As [the yield for 10-year Treasury bonds] moves toward five percent, five percent is perhaps a level that will cause angst for sentiment and pressure valuations,” Terry Sandven, chief equity strategist at US Bancorp Asset Management, told CNBC. The strategist underscored that this “is a roller coaster market filled with angst and opportunity.” “On one hand, there’s much to like about the market environment. Inflation is relatively steady, interest rates are range bound, and earnings are robust,” Sandven said. “Conversely, you’ve got Middle East conflict, the Middle East conflict that continues, and that’s pushing oil prices higher, which of course is inflationary.”
“This has been — by far — the best earnings season in years for US companies, especially tech firms. The AI boom has seen profits comfortably surpass expectations, indicating the recent decline in chip stocks is overdone.”
— Sebastian Boyd, Macro Strategist, Markets Live.
“Investors are recalibrating expectations for Fed rate cuts, reducing the excess liquidity that has fueled speculative, momentum-driven markets,” Richard Bernstein, global head of macro and customized investing at Janus Henderson Investors, said. “Market leadership is expanding beyond the ‘Magnificent 7’ as investors increasingly reward improving fundamentals rather than hype-driven momentum.”
“Is the momentum unwind done?” said Max Kettner at HSBC Holdings Plc. “A ‘momo’ reversal could lead us to new all-time highs in equities.”
The recent volatility looks more like a positioning event than the start of a fundamental deterioration in the AI story, though the degree of leverage in the space acts like a multiplier for the move, according to Mark Hackett at Nationwide.
In today’s Markets Update:
A deeper look at Friday’s stock and sector breakdown, including the megacap-led rally, Amazon’s surge, Apple’s weakness, and the continued split between the cap-weighted indices and broader participation.
Notes on several company movers and corporate developments.
Updated daily and weekly technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX.
A review of market breadth and participation, including large individual winners and losers, Nasdaq 52-week highs versus lows, Tier1Alpha on the SPX versus equal-weight spread, and speculative trading activity surging.
A look at the rates and Fed backdrop, including the moves in 2-year, 10-year, and 30-year Treasury yields on a weekly basis, updated Fed hike expectations, statements from Fed dissenters Beth Hammack, Neel Kashkari, and Lorie Logan, BlackRock’s Wei Li on the long end, BoA/Hartnett’s Fed-chair nomination warning, and the jump in the MOVE index.
A look at volatility and market structure, including VIX, VVIX, 1-day VIX, and JPM on equity long/short hedge-fund deleveraging.
A review of cross-asset trends, including WTI crude, the dollar, gold, copper, natural gas, and bitcoin including weekly charts.
Mark Hulbert on insider sentiment.
A wrap-up on the AI trade, megacap concentration, breadth beneath the surface, rising yields, Fed credibility, volatility, and the near-term market setup.
A look ahead to next week’s calendar, including US economic data, Fed speakers, Treasury auctions, and SPX earnings.
