What Happened Last Week
- Tech Leadership: Technology stocks powered the indices higher, but the rally was broad-based, with equal-weight large caps and international stocks reaching new highs.
- Continued Strength in Earnings: Earnings growth remains well ahead of expectations, providing fundamental support for the rally.
- Lighter Labor Data: A cooler-than-forecast labor report and falling energy prices saw yields fall across the curve.
What We’re Watching This Week
- Earnings Week Five: The next test for this earnings season will be more reports from AI Infrastructure names.
- Energy Prices: Investors are growing weary of the latest delays in U.S. – Iran negotiations, with energy prices rising to start the week.
- Inflation Data: The July Consumer and Producer Price Index reports (CPI and PPI) are due this week, with the Fed’s focus squarely on inflation.
Investment Management Team’s Views
Technology stocks reclaimed market leadership last week, but the advance was much broader than the AI trade alone. The Nasdaq-100 Index gained more than 5%, its best week since May, as exceptional hyperscaler earnings and cleaner positioning drew investors back into AI infrastructure names. Since the post-Fed lows, the index has rallied more than 9% and is again within striking distance of its all-time high. Just as important, the S&P 500 Index, equal-weighted large caps, small caps, and international equities all reached record highs last week. That breadth is encouraging: when technology comes under pressure, investors are increasingly rotating within equities rather than reducing exposure altogether. Paired with tremendous earnings and revenue growth, the backdrop remains supportive for risk assets.
Lower oil prices and softer labor data pulled interest rates down across the curve, though we think the move in yields may have gone a bit too far. Crude fell nearly 8% as investors continued to anticipate eventual progress in the Middle East, while a weaker-than-expected jobs report added further downward pressure to rates. Our broader view of the labor market has not changed: it remains resilient enough to support trend growth without showing clear signs of generating additional inflation pressure. Inflation, rather than growth, therefore remains the more important constraint on Fed policy, making Wednesday’s CPI report a more consequential input for rates than last week’s employment data.
The week ahead will test whether falling yields and renewed AI momentum can coexist with a still-complicated inflation backdrop. Wednesday’s CPI and Thursday’s PPI will show whether stronger growth and elevated energy costs are beginning to feed into broader price pressures, while Friday’s retail sales report will provide another read on consumer resilience. On the corporate side, CoreWeave, Cisco, and Applied Materials will offer fresh signals on the durability of AI infrastructure demand. At the same time, renewed uncertainty over negotiations with Iran has pushed oil higher at the start of the week, making energy prices an important swing factor for inflation expectations, rates, and risk appetite.