WEEKLY MARKET SUMMARY

Global Equities: Mostly positive earnings weren’t enough to shake concerns over rising inflation and a weakening labor market, sending stocks sharply lower during the week. The S&P 500 slipped -2.3% during the week, the Dow Jones Industrial Average declined -2.9%, and the Nasdaq ended down -2.2%, with most of the selling occurring Friday in response to the July jobs data release. US Small Cap stocks faced heavy selling pressure in the risk-off move, losing -4.2% during the week. International stocks suffered as President Trump ramped up the tariff rhetoric, with Foreign Developed market stocks falling -3.8% and Emerging markets dropping -2.7%.

Fixed Income: The Fed kept rates unchanged as expected, with Fed Chair Jerome Powell remaining noncommittal on at September rate cut during his post-meeting press conference. US Treasury yields rose following Powell’s comments. That move was more than reversed on Friday when yields fell sharply following weak jobs data, raising the likelihood that the Fed will cut rates in September. The 10-Year Treasury yield slipped to 4.23% and 30-Year yields fell from 4.95% to 4.81%. Despite the increased risk of economic slowdown, high yield bonds held up relatively well during weekly trading, down just -0.1%.

Commodities: Crude prices were up during the week despite a Friday pullback, with US West Texas Intermediate crude trading at $67.31 as of Friday afternoon. Oil giants ExxonMobil (XOM) and Chevron (CVX) both beat earnings estimates during the week, although profits were lower amidst a second-quarter slump. Gold prices rose to $3,400/oz.

WEEKLY ECONOMIC SUMMARY

Jobs Disaster: The July jobs report was weaker than expected at just 73,000 vs an expected number of 110,000. Unemployment rose slightly from 4.1% to 4.2%. The bigger news, however, was that the May data was revised downward from 144,000 to 19,000 and June was revised down from 133,000 to just 14,000. The abnormally large revisions caused interest rates to fall and raised the probability of a September rate cut since the Fed has cited labor market strength as a reason to hold off on rate cuts. President Trump lashed out on social media and immediately fired the head of the Bureau of Labor statistics, claiming political bias without providing any evidence in support of those claims.

Inflation Heats Up: The Fed’s preferred inflation metric, the Core Personal Consumption Expenditures (PCE), increased 0.3% in July, bringing the annual rate of inflation up to 2.8%. Over the past three months, Core PCE has now trended at 3.2%, reversing earlier progress towards the Fed’s 2% target. The Fed will get one more data release prior to the September meeting, but most economists anticipate tariff-driven inflation is just getting started and will peak around November.

Earnings Update: Meta (META), Microsoft (MSFT), Apple (AAPL), and Amazon (AMZN) all reported during the week with mostly positive results. Meta was the big winner after crushing estimates and raising its outlook, while Microsoft also reported strong growth across its Azure cloud business and AI initiatives. Apple, which has lagged in the AI race, announced plans to increase investment and reported its best revenue growth since 2021. Amazon was the laggard of the group, warning that chip shortages could impact its AWS business. Overall, it was another strong quarter for the “Mag 7” overall, with the biggest member, Nvidia (NVDA) yet to report.

CHART OF THE WEEK

The Chart of the Week shows the monthly non-farm payroll gains following the revisions to the May and June data. While revisions to data are not uncommon, the combined size of the May and June revisions was considerable and shifts the narrative of a healthy jobs market that the Fed has repeatedly used to justify pausing on interest rate cuts. The Fed’s argument has been that since the US labor market is so strong, the economy can absorb higher interest rates without a recession, giving the Fed “dry powder” to cut rates later if tariff-driven inflation shows up. Now, tariff-driven inflation appears to be on the horizon, but the jobs market looks far weaker than previously thought. As of Friday afternoon, the odds of a September cut more than doubled from 40% to 83%, according to Feds Funds Futures market data from CME Group’s Fedwatch tool.