Markets Update - 7/31/26

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.

US equity indices continued w/the trend of more volatile sessions, opening higher, falling into negative territory w/in the first hour, then rallying from there.

Large cap indices left the small caps behind though w/the RUT -0.5%. In contrast DJIA +0.5%, SPX +0.7%, Nasdaq +1%.

5-day chart shows the volatility w/indices traveling from solidly positive to solidly negative then rallying from Wed's lows in very choppy fashion.

Nasdaq ended +1.6% (after being down -2.1% Wednesday), SPX & DJIA +1.1%, RUT though +0.1%.

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.

Stock and sector breakdown (in part from Briefing.com)

While we had another solidly positive day on the SPX Friday, just 4 of 11 sectors were in the green, and it wasn’t ultra-heavyweight Tech holding things up which instead finished -0.5%. Instead it was big gains from Consumer Discretionary (led by Amazon’s +15.3% (best since 2012)) and Comm Services +4.6% (w/Google +6.8%, META +3.2%) that pulled the index higher. Industrials and Energy both +0.8% were the other two positive sectors. Also helping was just one sector down more than 0.75% in Materials (-2.7%) one of the smallest.

What Microsoft (MSFT 464.72, +13.62, +3.02%) and the semiconductors did for the stock market on Thursday, Amazon (AMZN 271.58, +36.08, +15.32%) and several of its mega-cap brethren did for the stock market on Friday.

It was an impressive follow-up act that had a similar overlay, right down to the opposing force of a mega-cap laggard. On Thursday, that laggard was Meta Platforms (META 556.71, +17.68, +3.28%). Today, it was Apple (AAPL 308.91, -24.52, -7.35%), which was sold off after providing disappointing fiscal Q4 revenue guidance that it attributed to supply constraints and negative FX effects.

Fortunately, Apple’s struggles did not pull down the market, partly because there was a recognition that Apple’s problem is a supply problem and not a demand problem. At the same time, other mega-cap leaders, namely Alphabet (GOOG 356.65, +22.97, +6.88%), NVIDIA (NVDA 200.75, +5.71, +2.93%), and Microsoft, flexed their muscles, and along with Amazon, more than made up for Apple’s losses.

The S&P 500 energy sector was the market's best-performing sector this month, gaining 12.6%.

In that regard, the number of large SPX winners (up over 3%) fell to just ~20 from ~70 Thursday, ~40 Wednesday, and well under the ~120 Tuesday, although large losers (down over 3%) also fell to ~20 from ~95 Thursday, ~100 Wednesday and ~50 Tuesday.

$AMZN Amazon up over 16%, the best since 2012 and very close to the best since 2009.

It's also unsurprisingly the best two-day gain (+19.4%) for $AMZN Amazon since October 2009.

$SOX is up 9.3% since Wednesday's close.

While it seems like a lot, and it is the best since June 11-12, this is the tenth two-day rally of at least 7.3% since April (not double counting three-day rallies; counting those there have been thirteen).

There were also four additional of at least 5%.

As a side note, we're well off the highs of the day. At the highs, the two-day rally was +14.8%, matching March 2020.

And despite that this is also on track for the worst month (-19.8%) for the $SOX semiconductor index since October 2008.

BBG: While aggregate SPX earnings are on track for a 26.8% beat, Nasdaq-100 is +55.3%, and the BBG AI value chain is +70.9%.

Interestingly, though, the SOX Philadelphia Semiconductor Index is the least at +17.3%.

The push from Microsoft + Semiconductors meant despite the rally in the cap-weighted SPX “more than half of SPX constituents finished negative on the day.”

“While this level of breadth dispersion is something we comment on often, yesterday was one of the most extreme examples we have seen, marking the third-largest return spread on record between SPX and its equal-weight counterpart. The only equal or greater observations occurred in 2000 and 2020.”

“Overall, this was an extreme example of market-cap distortion taking effect when systematic liquidity is limited and an unusually large mechanical flow is directed toward a handful of stocks that happen to carry some of the largest weights in the index. Although this is one of the most fascinating market-structure anomalies we have seen in years, it continues to add a high degree of instability to the current environment.”

And despite another healthy gain in the Nasdaq, the number of net 52-week lows (minus 52-week highs) grew to 135 Friday.

And speculation on the Nasdaq jumped again with the top three stocks by volume (again all penny stocks as were also the next five most traded stocks on the Nasdaq) trading almost 3B shares, double the 1.5B Thursday, and many times the levels we were seeing a week ago. Thirteen were over 100M, also one of the higher readings of the year.

Some other corporate news from BBG

• Moonshot has a computing power agreement with Alibaba Group Holding Ltd. for the use of around 20,000 Nvidia Corp. chips, underscoring China’s continued reliance on Western semiconductors to fuel its AI development, according to people with knowledge of the companies’ operations.
• Anthropic PBC said its AI models breached three organizations during cybersecurity tests that went awry, a little more than a week after its chief rival, OpenAI, disclosed a similar incident.
• ExxonMobil Holdings Corp. and Chevron Corp. plowed blowout profits into debt reduction rather than huge buyback increases, a sign of caution about how long war-driven price rallies will last.
• A Novo Nordisk A/S experimental drug failed to reduce the risk of heart attacks and strokes in a large study, a blow to the drugmaker’s growth prospects beyond obesity and diabetes.
• Reddit Inc. failed to announce any new data licensing agreements in its latest earnings report, disappointing investors who are hoping to see a shift in revenue streams.
• Roblox Corp. reported second-quarter daily active users that missed analysts’ expectations, reflecting the ongoing impact of new child-safety measures.

Note on all charts the colored lines are moving averages (the average price over the lookback period (days on the daily charts, weeks on the weekly charts)): 20 = green 50 = purple 100 = blue 200 = brown

Exception is monthly charts where blue is 10-month moving average and brown is 20-month moving average.

MACD = Moving average convergence/divergence line, a measure of momentum that compares longer term and shorter term momentum to gauge if a move is strengthening or weakening. This is probably my favorite individual indicator (it’s also the favorite of Katie Stockton, a very fine technician).

RSI = Relative Strength Index (basically what it sounds like) = measures the strength of the move comparing gains to losses over the given lookback window (I use the standard 14 periods).

Turning to the charts, the SPX continued its bounce from the lowest close since June 10th Wednesday now over the 50-DMA. Just has that trendline resistance from the highs now before a retest. Daily MACD remains negative but is very close to flipping positive, and the RSI is back over 50.

Nasdaq not yet back to its 20 or 50-DMAs. Its daily MACD and RSI also remain more negative.

The Russell 2000 (RUT) remains capped by its downtrend line from the highs. The daily MACD remains in a “sell longs” reading, and its RSI under 50, so not a great chart right now.

The equal-weighted SPX which had been the star of the bunch for most of July eased back another 0.2% again recovering from steeper losses intra-session. The daily MACD is now neutral but the RSI remains over 50 for now.

Looking at the weekly charts, it is now just the equal-weight SPX that remains in what could be characterized as a short-term uptrend. The SPX has flattened out while the RUT has turned lower and both have seen their weekly MACD’s cross to “sell longs” positioning as the Nasdaq did a week ago. RSI’s though are more bullish (although all showing slowing momentum from earlier in the year), while all remain comfortably above their rising 50-week moving averages.

Yields firmed across the curve Friday

Two-year Treasury yields up for the first time in a week, ending right where they started down 5 basis points from last Friday’s close at 4.29%, just five basis points from last Thursday’s close, the highest since February of last year, and still over the nearly three year downtrend line.

They are ~61 basis points above the Effective Fed Funds rate (red line), continuing to call for rate hikes.

Weekly chart:

And that firming in the two year was as Fed rate hike expectations continue to build back after falling on Wednesday post-FOMC. Now back up to a 65% chance of a September hike (down through from 90% chance pre-FOMC) and 86% chance of a hike this year (with a 44% chance for two hikes). But there remains a 94% chance we’ll get at least one hike over the next year and 69% chance of two (10% chance of three).

I mentioned in last night’s update that “we may hear from some Fed members, particularly the three dissenters [Friday]. If not, expect something from them by Monday.”

And so far we have two of the three. I’ll start with Cleveland Fed President Beth Hammack’s short statement, posted in full, where she reiterates her pre-meeting criticism that “inflation has been too high for too long,” and that “now is the time for the FOMC to act,” as she is “not confident it will return to our objective on its own.”

“The longer that high inflation persists, the more challenging and costly it can be to bring it back down.”

“What I have heard from across the Fourth Federal Reserve District reinforces this view. Businesses describe pricing pressures as broadening rather than fading, and consumers are expressing despair over persistently higher prices.”

“A higher federal funds rate would help restrain economic activity and reduce inflationary pressures.”

Minneapolis Fed President Kashkari released a slightly longer statement, though much shorter than his previous commentaries, which often include charts. He similarly noted that “inflation has been elevated relative to our 2 percent target for more than five years.”

He says that while “economic theory” calls for policymakers to “look through” supply shock inflation, as Governor Waller mentioned a couple of weeks ago, “I increasingly believe that monetary policy does have an important role to play in addressing a series of successive supply shocks that might lead to entrenched higher inflation.”

“To manage against the risk that high inflation could become entrenched, I would rather tighten policy incrementally as we gather more data on the path of inflation and employment. If inflation remains elevated, in my view, a potential series of small policy moves would be better than waiting and eventually concluding that even bolder actions were necessary.”

“On the other hand, if inflation durably fades, a strategy of small policy steps would allow the FOMC to slow or pause subsequent adjustments without unnecessary impact on the real economy.”

Notably he did not say “reverse” adjustments.

Finally, we have our third dissenter, Dallas Fed President Logan.

No surprise she mentions five years of high inflation. “More than five years after the post-pandemic surge, prices have continued to rise too rapidly. Every month of above-target inflation compounds the strain on the budgets of American families and businesses.”

Like Hammack she says she does not see inflation returning to 2% without help. “Even after accounting for productivity gains and temporary supply shocks, inflation appears to be trending toward the mid-2s, not all the way to 2 percent, and the risks are to the upside.”

Also like Hammack she sees little restraint from current rates. “Labor, consumption and financial market conditions indicate that monetary policy is not restraining the economy. Without any policy restraint, inflation will likely continue to trend above target until there’s an unanticipated shock.”

And like Kashkari she notes that “modest action in the near term would reduce the likelihood of needing to take sharper action later.”

Notably, all three found the labor market “solid,” or words to that effect, with Logan saying it may be “strengthening a bit.”

10-year yields resumed their climb ending up 6 basis points on the week at 4.74%, the highest close since January 2025.

Weekly chart.

30-year yields similarly up to 5.27% the highest level since 2007, climbing 11 basis points on the week.

Wei Li of BlackRock wrote, “This Fed easing cycle is highly unusual. 22 months after the first cut, long-term yields are higher, not lower. In fact, the 30-year yield has now risen the most of any cycle in the past 40 years (chart).”

“Warsh wants to ‘observe.’ Markets and the message markets are sending is one of inflation if left unaddressed, which equals more rate volatility.”

“The two times the long end increased similarly since a Fed first cut were 2020 and 1998. In the first, aggressive cuts preceded surging inflation amid pandemic supply constraints. In the second, insurance cuts preceded the dot-com boom.”

Do not say that BofA’s Hartnett did not warn you. From the December 4, 2025 Flow Show.

“In three months after seven nominations since 1970, Burns, Miller, Volcker, Greenspan, Bernanke, Yellen and Powell, yields were up every time. The 2-year yield rose by an average 65 bps and the 10-year yield by an average 49 bps.”

Warsh equals 2-year plus 79 bps and the 10-year plus 59 bps.

Expected Treasury market volatility (MOVE index) closed at the highest since March.

Despite the jump in the MOVE index, expected SPX volatility (VIX) continued to fall now down to 16.0, a two-week low, in its “normal” range post-GFC, consistent w/~1.0% average daily moves in the SPX over the next 30 days.

The VVIX (VIX of the VIX) similarly dropped to 91.6.

The current level is consistent with “moderate” daily moves in the VIX over the next 30 days (historically, normal is 80-100, but we’ve been above 90 most of the time since July ‘24). Above 100 is the level flagged by Charlie McElligott as indicating higher stress.

And despite a weekend upcoming, the 1-day VIX fell to 12.3, the lowest in over a week. The reading is consistent with a move of 0.77% in the SPX next session.

WTI up a couple of percent to the highs of the week (but down from the highs of the month).

The DXY dollar index (which is fixed weighted with a heavy (57%) vs the euro) fell for a fourth day to cap its worst week since January (when Fed independence was under attack), now down to the target of the 100-DMA and trendline from the January lows.

The daily MACD as noted Wednesday has flipped to negative while the RSI is now under 40. I said Wednesday “still too early to call an end to the uptrend,” but as I said Thursday “a break of those levels would make that call much closer.”

Weekly chart still hanging on to a bullish read, but by a thread now.

Gold futures (/GC) not able to extend after crossing the downtrend line from the March highs. As I’ve mentioned for now three weeks “the technicals remain much better than the price action.” Really needs to get over that 50-DMA (purple line).

Weekly chart also remains weak.

US copper futures (/HG) continue to move in step with the AI trade giving back early gains but continuing to have “relatively supportive technicals.” Longer term in the middle of their range since May.

Weekly chart. Something for bulls and bears.

US natural gas futures (/NG) like copper gave up early gains although a third day of higher highs and lows as they look to stabilize after falling out of their two-week range on Monday. The daily MACD and RSI continue to say the trend is lower for now.

Fifth straight down week.

Bitcoin futures continue to do a lot of nothing, ending at the same levels they were at in early June. As I mentioned two weeks ago, “the daily technicals continue to look better than the price action, so maybe there’s a chance?” So far that hasn’t translated into more than a modest move higher, and the technicals are now starting to roll over.

Weekly chart not any better

Other stuff

Here’s one for the bears

Mark Hulbert notes that the measure of insider sentiment favored by Nejat Seyhun, a finance professor at the University of Michigan and a leading expert on interpreting insider behavior, stands at 14.8% for July, on track for the lowest level in at least 21 years.

Further, Seyhun has found from his research that insider selling is an especially bearish signal when it comes in a declining stock market. When that happens, it usually means that insiders on balance are not confident that the market will recover quickly enough to make waiting to sell worth their while.

Insiders appear to be particularly bearish about shares of the largest companies. Among the large-cap companies with any insider buying or selling in July, just 3.2% had net insider buying.

Note though the stock market has been remarkably resilient despite the measure below the 10-year average for a large majority of months during the last three years. So at a minimum, the insiders’ caution has been premature.

Seyhun’s measure looks at the number of companies with net buying from corporate officers and directors expressed as a percentage of all companies that had any buying or selling from those insiders.

Per the @dailychartbook nightly email, JPM noted Thursday that “investor deleveraging progressed much faster than expected, leaving limited scope for further downside driven by forced selling.”

“Equity long/short hedge funds largely unwound the leverage accumulated during the April-May semiconductor rally,” which may have given space for Thursday’s rally.

Wrap-up

I just realized I didn’t update this yesterday, sorry!

As I wrote Monday:

As noted in this week’s Week Ahead, we continue to see the “on again, off again” nature of the AI-trade, which recently has been mostly “off again”.… That said we also continue to see strength elsewhere offsetting that as also mentioned.

That balance is important to keep us above the key support trigger levels covered in the Week Ahead, and a flat day is a definite positive in terms of volatility lookbacks.

Today we saw a continuation of the return to the AI trade from Thursday, but we saw even less of the “strength elsewhere”. The good news is that the two-day rally has taken us away from systematic sell thresholds, even as the higher volatility will probably see some continued selling into next week (we’ll see what we get from BofA, DB, etc., over the weekend).

And as noted Wednesday “until longer duration yields stabilize, it will keep pressure on the ‘elsewhere’ stocks.

So, as I said last Sunday:

overall, I remain broadly constructive on markets, but cautious in the near term. Corrections happen, and there are a lot of reasons one could happen now: investor caution over heavy capex spend and competitive concerns leading to AI/Tech weakness which has outsized market impact given the heavy leverage, thinner gamma support, less helpful systematic, corporate, and retail flows, a more hawkish Fed and rising oil prices pushing rates to new highs, and still-unsettled Middle East risk. At the same time, earnings continue to beat a very high bar, and the story outside of Tech has been very favorable. As I said last week, “it seems odd if earnings continue to beat that it would happen now, but as I often say, you never know with these things.” That remains the case.

That said, we saw a good amount of deleveraging as JPM noted, so we’re in a much better position from a positioning and sentiment standpoint than we were coming into the month. More Sunday.

The Week Ahead

Next week is the first week of the month which also means it’s jobs week in the US, and we’ll get the normal first week of the month cadence of reports culminating in the July Nonfarm Payrolls Friday (technically the Employment Situation report) along with the NY Fed’s consumer survey and June consumer credit.

As usual before we get to jobs day we’ll get the July ADP monthly employment, Challenger job cuts, PMIs, and auto sales, June JOLTS, construction spending, factory orders, trade balance, as well as the standard weekly reports (jobless claims, mortgage applications, and US petroleum inventories (not ADP though with the monthly report this week)). We’ll also get the first read on Q2 productivity and unit labor costs.

While the Fed policy speaking blackout is over (and we did hear from the three dissenters as I mentioned we might in last night’s update) Fed speakers on the calendar are light with just Governor Cook and regional bank presidents Musalem and Barkin. I can assure you there will be more.

In terms of non-Bill (>1yr in duration) US Treasury auctions, we’re off next week.

While we’re now on the downslope (at least in terms of SPX earnings weight) for Q2 earnings season, the number of reporters actually increases with 140 SPX components (and 2,600 total companies according to WallStHorizon) reporting next week with 23 >$100bn market cap (BRK/B (Saturday), LLY, AMD, CAT, MRK, PLTR, ANET, AMGN, MCD, WDC, SNDK, DIS, GILD, BKNG, COP, PFE, UBER, CVS, APP, PH, VRTX, HWM, MCK in order of earnings weight).