Markets Update 8/6/26

Quick Summary

• US equity indices opened mixed. The S&P 500 was little changed while the Nasdaq-100 fell 0.7% as Sandisk and Western Digital weighed on technology shares.
• Technology recovered after the open, while renewed Middle East concerns pushed oil prices and Treasury yields higher and added pressure to the broader market.
• Reports said Iran could seek restrictions and compensation for US and Israeli ships using the Strait of Hormuz. WTI rose nearly 3% and Brent almost 4%, even as Iran and Oman moved toward a temporary reopening agreement.
• The Dow fell 0.9%, the S&P 500 lost 0.2%, the Nasdaq Composite was down 0.1%, and the Russell 2000 also finished lower.
• Challenger job-cut data, second-quarter productivity and labour-cost data, and jobless claims pointed to continued economic resilience. Friday's employment report became the key near-term event for markets.

US equity indices started with technology lagging and the Dow leading, then all moved into negative territory by noon and stayed there for most of the session. The Dow fell 0.9%, the Russell 2000 0.6%, the S&P 500 0.2%, and the Nasdaq 0.1%.

Some market commentary

“Until a more positive development in the Middle East is confirmed, and ahead of tomorrow’s important US employment data, markets have taken a wait-and-see stance,” said Karl Steiner, head of analysis at SEB. “This is reflected in the stock market development, a fairly unchanged oil price and small movements in the US 10-year Treasury yield.”

“Today still feels like a wait-and-see session from a macro perspective. Tomorrow’s payrolls report feels binary: a second weak print would strengthen the dovish case, while a strong number would point to the June figures as an anomaly and pull forward expectations for the next hike. —Skylar Montgomery Koning, macro strategist.

“Friday’s jobs report is of greater importance for markets given how fast this stock market has rallied over the past week, and ultimately we will need to see a number that is not too hot and not too cold in order for the market to keep grinding higher,” said Clark Bellin at Bellwether Wealth. “The labor market is holding up well in the face of elevated interest rates and AI productivity gains,” Bellin noted. “We are still seeing plenty of companies hold onto their labor force even as AI investments take hold.”

“Near-term risks remain, especially if US data stay firm, oil prices keep inflation concerns alive, or markets continue to price in a more hawkish Federal Reserve rate path,” said Ulrike Hoffmann-Burchardi at UBS Chief Investment Office.

“The markets seem to be mostly taking a breather after an active period of trading prompted by earnings results,” said JJ Kinahan, Cboe’s head of retail expansion and alternative investment products. “Better-than-expected profits and sales don’t always pump stocks prices when coupled with soft guidance.” “Some profit-taking could also be in play,” he also said, noting that both Sandisk and Western Digital have skyrocketed in the last year. Over the past 12 months, Sandisk has soared 3,000%, while Western Digital has surged more than 500%.

“Investors are beginning to be a bit more focused on the underlying rather than headline narrative,” said Stephanie Niven, a portfolio manager at Ninety One UK Ltd. “People are beginning to look beyond the narrative of these businesses - the multiple they’re willing to pay, the underlying free cash flow dynamics and the predictability of those numbers coming through.”

“Markets have seen plenty of false dawns throughout this conflict, and while the detail is becoming more concrete, attention is now shifting from whether an agreement can be reached to what the final arrangements will look like, including unresolved questions around whether Iran will eventually be permitted to levy tolls on vessels using the Strait,” Deutsche Bank strategist Jim Reid wrote.

“The market is transitioning from a rapid rebound to a potentially sustainable intermediate-term advance, with financials and cyclicals replacing AI and semiconductors as the primary leaders,” wrote Craig Johnson, chief market technician at Piper Sandler.

In today’s Markets Update

• Thursday's stock and sector breakdown, including technology's stabilising role despite weakness in memory shares.
• Key earnings and corporate reactions, followed by updated SPX, Nasdaq, Russell 2000, and equal-weighted SPX technical charts.
• Market breadth and participation, together with the move in two-year, ten-year, and thirty-year Treasury yields and the Fed-policy discussion.
• VIX, VVIX, one-day VIX, record S&P 500 call-option buying, and Goldman on low implied correlations.
• WTI crude, the dollar, gold, copper, natural gas, bitcoin, Tom Lee's S&P 500 view, vol-control flows, mortgage rates, and the Atlanta Fed GDPNow tracker.
• Friday's calendar and jobs-report previews from Bloomberg, JPMorgan, Bank of America Institute, and Goldman.

Stock and sector breakdown

Despite being just mildly lower, SPX just 3 of 11 sectors higher, and only one was up more than 0.2% in Energy (+1.6%). Helping was the ultra-heavyweight Tech sector (nearly 40% of market cap) on the green side even if only +0.1%, and no sector down more than -0.9%.

Technology provided a stabilizing influence after opening the session under pressure, even as Sandisk (SNDK 1258.58, -91.92, -6.81%) and Western Digital (WDC 451.52, -67.65, -13.03%) ended lower. Still that was well above their worst levels. Sandisk delivered strong quarterly results, though its guidance disappointed investors, while Western Digital appeared to face some profit-taking after its recent rally as investors looked for a more robust report. The recovery in both memory names helped spark an early rebound across the broader semiconductor group. The PHLX Semiconductor Index climbed more than 1.0% before surrendering most of that advance to finish just 0.3% higher. Gains were relatively modest but consistent across much of the group, with Advanced Micro Devices (AMD 489.28, +7.23, +1.50%) reclaiming a portion of its post-earnings decline.

The information technology sector (+0.1%) finished as one of just three S&P 500 sectors in positive territory. Software remained a weak spot within the sector. AppLovin (APP 335.67, -82.13, -19.66%) plunged after reporting in-line earnings and weaker-than-expected revenue, while Datadog (DDOG 229.29, -53.88, -19.03%) sold off as investors focused on a slowdown in sequential growth. Those declines weighed on the iShares GS Software ETF (IGV 99.46, -1.86, -1.83%), though continued strength in Microsoft (MSFT 499.86, +12.40, +2.54%) helped offset some of the weakness.

The early rebound in technology took some momentum away from the broader market, which had initially benefited from strength across more defensive and cyclical areas. The increase in oil prices that pushed Treasury yields higher, contributed to a less supportive backdrop for stocks throughout the remainder of the session.

The health care sector (+0.1%) eked out a modest gain shortly before the close, joining energy and information technology as the only sectors to finish higher.

Meanwhile, the communication services sector (-0.7%) ranked among the day’s weakest performers. Alphabet (GOOG 356.62, -3.51, -0.97%) remained under pressure following reports yesterday that several high-profile AI leaders are leaving the company. Bloomberg also reported that the company is preparing to raise approximately $25 billion through a bond offering. The Trade Desk (TTD 17.67, -1.29, -6.80%) added to the sector’s weakness ahead of its earnings report after the close.

The industrials sector (-0.8%) also lagged as Honeywell (HON 240.74, -7.38, -2.97%) and Axon (AXON 522.46, -87.03, -14.28%) suffered sharp post-earnings declines. The group faced additional pressure from oil- sensitive airline and trucking names as crude prices climbed.

Elsewhere, the materials sector (-0.9%) pulled back following its strong start to the week, while the utilities (-0.9%) and real estate (-1.0%) sectors continued to underperform.

And the number of large SPX winners (up over 3%) dropped for a second day to ~25 from ~30 Wednesday and ~110 Tuesday, while large losers (down over 3%) edged up to ~45 from ~40 and 12.

Biggest after-hours movers

• Airbnb. Shares rose about 7% after second-quarter earnings of $1.37 per share on $3.61 billion in revenue, compared with LSEG forecasts of $1.25 and $3.58 billion.
• Lyft. Revenue of $1.84 billion beat the $1.81 billion LSEG consensus, while earnings of 13 cents per share missed the 14-cent estimate.
• DraftKings. Shares fell more than 1.5% after $1.44 billion of second-quarter revenue missed the $1.51 billion expectation. The company reported a 14-cent loss per share against expectations for a 2-cent profit and reaffirmed fiscal 2026 guidance.
• Twilio. Shares rose about 16% after the company projected adjusted earnings of $1.42 to $1.47 per share on $1.51 billion to $1.52 billion in revenue for the current quarter, ahead of the LSEG consensus.
• Trade Desk. Shares dropped 22% after adjusted earnings of 34 cents and $715 million of revenue fell short of expectations for 40 cents and $751 million.
• Sweetgreen. Shares fell 14% after a 22-cent second-quarter loss on $195 million of revenue, compared with an expected 15-cent loss on the same revenue.
• Akamai Technologies. Shares gained 12% after adjusted earnings of $1.59 per share and $1.10 billion of revenue exceeded consensus estimates.
• Maplebear. Shares rose more than 8% after Instacart posted $1.04 billion of second-quarter revenue, while earnings of 45 cents per share came in below the 54-cent estimate.
• Cloudflare. Shares gained 17% after issuing solid full-year and current-quarter guidance, with third-quarter revenue expected at $736 million to $737 million.
• Dropbox. Shares fell almost 6% after non-GAAP gross margin of 81.6% narrowly missed expectations, although adjusted profit of 75 cents per share exceeded the 74-cent consensus.

Other corporate news

Alphabet Inc. is set to raise $25 billion from a bond sale after generous yield payouts helped secure one of the year’s largest order books for AI-related debt.

President Donald Trump has signed an order imposing tariffs on imported polysilicon used in semiconductors and solar panels in a bid to reduce US reliance on foreign supplies that threatens national security.

Peloton Interactive Inc. gave a revenue forecast for the fiscal 2027 year that disappointed investors, marking the latest setback for the fitness technology company.

Sweetgreen Inc. cut its annual outlook after warning that diners are eating less fresh prepared foods following the cyclospora outbreak.

Airbnb Inc. boosted its annual revenue forecast for a second time this year after it saw robust global travel demand, particularly in the US and Europe.

Lyft Inc. posted second-quarter bookings that beat expectations, citing growing demand for premium rides and strength in the European business it acquired last year.

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 eased back for a second session from all-time highs. The daily MACD remains very positive, and the RSI is just off a 2-month high, so as I said Monday “some momentum behind it.”

Bloomberg noted that Alphabet led S&P 500 point contributors in 2026 through Wednesday's close, narrowly ahead of Micron.

Nasdaq a similar story but hasn’t yet gotten to its all-time high.

The Russell 2000 (RUT) similar to the SPX.

The equal-weighted SPX same story.

Yields rose across the curve Thursday:

Two-year Treasury yields, which had been down for eight of the prior nine sessions, jumped 6 basis points, the most in nearly a month to 4.25%. They are still down 17 basis points from last Thursday’s close, which was the highest since February of last year, but back over the nearly three year downtrend line that they’ve been over for the most part for nearly three weeks.

They are ~59 basis points above the Effective Fed Funds rate (red line), continuing to call for rate hikes.

Fed policy and inflation expectations

People close to Warsh said he acknowledged mistakes in his first 10 weeks at the helm of the Federal Reserve, including insufficient reinforcement of price-stability messaging and confusion over whether longer-term reform plans could affect near-term policy. They said those errors do not warrant reversing his broader shake-up of the Fed.

Market-based measures of inflation expectations remain low and have fallen back in recent days, suggesting investors think the Fed remains committed to its 2% price-stability goal.

Warsh has publicly maintained that the decision-makers in bond markets understand his approach, even as commentators have become more critical.

Warsh would be prepared to raise interest rates at September's meeting if inflation readings released in coming weeks are hot and markets raise their expectations for increases in borrowing costs.

Warsh is expected to use his first Jackson Hole speech this month to explain the intellectual framework behind his quiet revolution and to clarify areas where he believes his communication has fallen short.

Governor Cook on inflation

The centre of the Fed appeared to be holding for now, though Governor Cook indicated less patience with inflation remaining above the 2% target.

Inflation is too high, and I consider the risks to the inflation side of the dual mandate higher than the risks to the employment side at this point. As such, I am prepared to act by raising rates, if necessary. I would support an increase, if it becomes necessary to bring inflation down.

Cook left open the possibility that hikes may not be needed if existing disinflationary forces continue. She cited tariffs dropping out of the inflation window, possible oil-price moderation, and easing AI-related inflationary pressure.

If I do not see signs of continued disinflation soon, I am prepared to act.

Mary Daly on inflation scenarios

San Francisco Fed President Mary Daly, who is not a 2026 FOMC voter, remained within the centre of the Committee in not yet being convinced that rate hikes are necessary.

Daly told an Economic and Social Research Institute conference that the decision to hold rates reflects the need to determine whether inflation comes from supply shocks that will fade or from a longer-lasting inflation situation.

She said the Fed should remain vigilant as information arrives and be prepared to act if inflation does not subside under her base case.

Daly said that good reasons exist to believe supply-driven shocks will not have a lasting effect on inflation, while Scenario Two has gained ground enough to warrant attention.

10-year yields also up 6 basis points to 4.68%, now just four basis points from the highest close since January 2025 on Friday.

30-year yields also up six basis points to 5.22% also just four basis points from the highest level since 2007 on Friday.

Another “spot down, vol down” day as the VIX edged back to 15.2.

The indicator remains in its “normal” range post-GFC, consistent with ~0.95% average daily moves in the SPX over the next 30 days.

Record S&P 500 call-option buying

The Tuesday session had a spot-up, vol-up pattern that is not particularly unusual around a new high, according to Tier1Alpha.

Daily Chartbook noted that four million S&P 500 call options were bought on Tuesday, an all-time record.

Goldman on implied correlations

Goldman said extremely low implied correlations strengthen the argument for owning equity-index volatility in coming weeks.

Option-implied correlations across S&P 500 stocks fell to their lowest level in recent decades, weighing on index implied volatility despite higher volatility at the stock and factor level.

Goldman expects the influence of macro drivers to rise as earnings season concludes and investor attention turns to the midterms and upcoming inflation data.

The VVIX (VIX of the VIX) also eased to 88.7

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 the 1-day VIX though moved up to 12.6. The reading is consistent with a move of 0.77% in the SPX next session.

WTI pushed off its 200-DMA. While technicals are secondary here, as I noted Tuesday the daily MACD has crossed over to a “sell longs” reading and the RSI is under 50.

The DXY dollar index (which is fixed weighted with a heavy (57%) weighting vs the euro) moved higher trading sideways for a fourth session around its 100-DMA.

The daily MACD as noted a week ago has flipped to quite negative while the RSI is at 40. As I said then, clearly consolidating, but too early to call it a downtrend. But if it resumes it’s decline, that might be enough for me.

Gold futures (/GC) started higher but gave that up to finish modestly lower, disappointing after it finally extended after Wednesday crossing the downtrend line from the March highs. Still has a good technical setup also with positive daily MACD and RSI.

US copper futures (/HG) like gold started higher and gave that back to finish mildly lower. It continues to have “supportive technicals,” with positive daily MACD and the RSI at a nearly 3-month high.

US natural gas futures (/NG) fell to the lowest close since the bottom in late April. The daily MACD and RSI remain negative.

Bitcoin futures continue to trade in their range over the past month+, also at the same levels they were at in early June. As I mentioned three 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. Clearing that downtrend line would be notable though, and I’d be a buyer if that happens and they move above the recent range.

Other stuff

Tom Lee's S&P 500 view

Tom Lee said that after a consolidation lasting eight to ten weeks, the S&P 500 could reach 7,900 or 8,000 this month, implying a gain of about 2.3% to 3.6%.

The bigger the base, the bigger the breakout.

Lee remained bullish on semiconductors, DRAM and memory, and said the recovery could be led by the Magnificent Seven, software and Ethereum. He added that earnings are accelerating.

Vol-control flows

The increase in realised volatility during the week was expected to produce selling from volatility-control funds, which are sensitive to changes in realised volatility.

We are also seeing signs of structural stress in the vol-control space now that one-month realised volatility has officially moved back above three-month realised volatility. Volatility-scaling strategies generally use the higher of the two look-back windows to determine equity allocations.

With one-month realised volatility higher, rebalancing flows should become more aggressive because the shorter look-back window is more sensitive to daily returns. Tier1Alpha estimated about $12 billion of net selling from this group so far this week.

Mortgage rates

The average rate on a 30-year fixed mortgage rose to 6.69% from 6.66% a week earlier, according to Freddie Mac. That was the highest rate since July 31, 2025, when it was 6.72%.

Atlanta Fed GDPNow

The Atlanta Fed's Q3 real GDP tracker stood at 5.83% after Wednesday and Thursday data, little changed from 5.86% on August 4 after only small offsetting component moves.

The estimate remained well above the blue-chip consensus of about 2.0%. The source notes that its first- and second-quarter estimates started very strongly before falling sharply in the final month before the official GDP readings.

• Consumption contribution, 2.81%, down 0.04 percentage point from the prior update.
• Inventories contribution, 1.92%, up 0.03 percentage point.
• Nonresidential fixed investment contribution, 1.04%, down 0.02 percentage point.
• Government contribution, 0.18%, down 0.01 percentage point.
• Residential investment contribution, 0.08%, unchanged.
• Net exports contribution, minus 0.20%, unchanged.
• GDPNow forecast, 5.83%, down 0.03 percentage point.

Wrap-up

As I wrote Sunday

As mentioned in the Markets Updates this week, we saw the “on again, off again” nature of the AI-trade, which spent much of July “off” (leading to the worst month for one broad semiconductor index since 2022 as noted in the Friday Markets Update), flip back to “on again” Thursday and Friday.

I had mentioned all month that “we have seen pullbacks several times previously in the AI trade over the past year, and they have all resolved relatively quickly to the upside. It would be a meaningful change in character if that did not happen this time as well,” and last week said while we had seen one of the sharpest pullbacks in the trade to date, it certainly wasn’t unprecedented (see DB’s note in the Flows section), and the momentum/Tech may be turning back up “on schedule.”

Given the weight of the components of that trade (semiconductors are 19% of the SPX by market cap, with Tech over a third in total) plus the leverage employed, (as noted by Tier1Alpha also in the Flows section) it will make a big difference in where the market cap indices go.

Of course, there are many other ways to play the market beyond buying the SPX and throughout July we saw broad strength which though seemed to fizzle out the last two days just as AI saw a resurgence. Hopefully we are not returning to the “either/or” market we saw at times earlier this year, but it all remains to be seen.

As mentioned Friday and in the Flows section, the deleveraging we have seen puts us in a much better position from a positioning standpoint than we were coming into the month, with BofA flipping to a net positive base case for the upcoming week, and DB becoming more constructive as well (in addition to JPM, Goldman, etc., per posts this week and several that will be in the Monday note (be sure to check the “Other Stuff” area tomorrow).

One thing we will need to keep an eye on is long-end yields. As I mentioned Wednesday “until long-end yields stabilize, it will keep pressure on the ‘elsewhere’ stocks.” Hopefully we see buyers come in next week to at least stabilize rates.

And as I said Monday:

wouldn’t you know it, but we ticked just about every box. The AI trade (after some early weakness) continued but we also got many of the “elsewhere” stocks participating as well, helped by yields stabilizing, which pushes us further away from systematic sell levels.

The one quibble is things might have been too good as a 1.5% move is not going to help systematics re-engage. That said, as noted in the Week Ahead, our most volatility sensitive systematic, vol-control, already de-risked as DB noted, so that is less concerning that it would be a couple of weeks ago.

But Wednesday I noted

today the AI-trade (and broader growth complex for that matter) turned “off again,” and there wasn’t enough support elsewhere to keep things going. The growth rally was quite strong the prior four sessions, so perhaps just a breather before it resumes. Could also require a more prolonged consolidation, but I don’t think we’ve gone far enough to really require that. Things haven’t gotten particularly extended (the Nasdaq-100 RSI is just 55 for example), so I’m thinking more a pause that might last through Friday morning with traders not wanting to get ahead of the Employment Situation report. FWIW that’s exactly what Fundstrat’s Mark Newton was looking for coming into today’s session.

And that “pause that might last through Friday morning” continued Thursday, not helped by the unfavorable headlines around Iran which lifted crude prices and Treasury yields along with the poor reaction to guidance from Sandisk and Western Digital.

Tomorrow though we get the monthly jobs report. Let’s see how that comes out, and we’ll revisit the situation tomorrow night.

But, as I said Sunday:

I think I’m a little more constructive this week in large part due to the cleaner positioning as well as still robust earnings growth which DB notes is not fully reflected in equity prices. It seems investors are back to being a little more comfortable with AI/Tech cash flows coming around post AI-buildout, and discretionary buybacks are returning, although retail flows remain subdued.

While gamma looks to start the week relatively low, that means there is room for larger moves in both directions, and a deal with Iran as anticipated by President Trump, if it happens, may mean that large move is to the upside.

The Day Ahead

After a packed week, we get to our marquee report of the week with the July Employment Situation report (some previews are below). This week, though, it’s not alone coming with the NY Fed’s consumer survey and June consumer credit reports.

In terms of Fed speakers, just Richmond Fed President Barkin (not a 2026 FOMC voter) is on the calendar.

Q2 earnings season continues but a light day with just 3 SPX components reporting with none >$100bn market cap.

Ex-US highlights are Japan household spending, German industrial production and trade balance, Canada employment, France and China trade balances, and Mexico CPI and PPI.

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Friday, August 7

• 08:30 AM. July nonfarm payroll employment. Goldman Sachs 75k, consensus 85k, prior 57k.
• Private payroll employment. Goldman Sachs 70k, consensus 83k, prior 49k.
• Average hourly earnings month over month. Goldman Sachs 0.3%, consensus 0.3%, prior 0.3%.
• Labour-force participation rate. Goldman Sachs 61.7%, consensus 61.6%, prior 61.5%.
• Unemployment rate. Goldman Sachs 4.3%, consensus 4.2%, prior 4.2%.
• 10:00 AM. Richmond Fed President Tom Barkin speaks.

JPMorgan expected July nonfarm payrolls to increase by 75k. It cited a middling alternative-data signal, a possible World Cup-related boost in leisure and hospitality, and a modest five-thousand increase in government payrolls. It expected average hourly earnings to rise 0.3% month over month and the unemployment rate to rebound to 4.3%.

The day's ex-US data include Japan household spending and leading indicators, German trade and industrial production, French current-account and trade balances, Canadian labour-force data, and China's trade balance and foreign reserves. Earnings include Allianz, Munich Re, Vistra, Take-Two Interactive Software and Banca Monte dei Paschi di Siena.

NFP Previews

Bloomberg's jobs-report preview

Economists estimated that the monthly jobs report would show an 85,000 increase in payrolls for July after a lower-than-expected 57,000 gain in June.

The unemployment rate was expected to hold at 4.2%.

JPMorgan's jobs-report forecast

JPMorgan's Feroli expected nonfarm payrolls to rise 75k overall and 75k in the private sector in July, with the unemployment rate increasing from 4.2% to 4.3% and the workweek holding at 34.3 hours.

The forecast called for average hourly earnings to increase 0.3% month over month.

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Payroll revisions

The revision pattern has recently become more balanced, so the consistent pattern of downward revisions in earlier years may no longer hold.

May and June have tended to see downward revisions at the time of the July report, whereas July itself does not have a clear directional bias to revisions.

Bank of America Institute on payroll growth

Bank of America Institute estimated that job growth accelerated to 2.0% year over year in July from 1.7% in June. It said this was stronger than the official payroll measure, although its account data have limited historical depth.

Bank of America Institute by income tier

Bank of America Institute found that July job growth was strongest among lower-income households. Higher-income households showed positive but weaker growth, while middle-income households showed a small decline.

Goldman

We estimate nonfarm payrolls rose by 75k in July, below consensus of +80k and the three-month average of +111k. We estimate that private payrolls increased by 70k, slightly below consensus of +83k.

We describe the factors we considered in our forecast in greater detail below.

Arguing for a weaker report:

Big data. The alternative measures of employment growth we track slowed modestly from their prior month’s pace: the indicators we track averaged +65k, compared to +79k in June.

A recent pattern of weak July employment reports. In each of the last three years, July payroll growth slowed from its previously stated three-month average (by an average of -66k) and missed consensus expectations (by an average of -35k). Those reports have also been paired with negative revisions to job growth for prior months, with job growth for the prior two months being revised down by an average of 112k.

Arguing for a stronger report:

World Cup hiring. Data from Homebase suggests that employment grew more quickly in World Cup host cities between the June and July reference weeks. That same data suggests that the World Cup boost began to unwind shortly after the July reference period. Our historical analysis suggests that the World Cup could boost payroll growth by 10k in July, and that its impact should be concentrated in the leisure and hospitality, professional and business services, and trade and transportation sectors.

Layoffs. Initial jobless claims averaged 210k in the July payroll month, down from 224k in June. The JOLTS layoff rate was unchanged at 1.1% in June. Announced layoffs reported by Challenger, Gray & Christmas declined by 12k to 33k in July (NSA), the lowest reading since July 2024.

Government hiring. Our forecast incorporates an assumed 5k increase in government payrolls. After declining for most of the last year and a half, government payrolls have increased by an average of 12.5k/month over the last four months, and government job openings—as measured by both the official data from the JOLTS report and alternative data such as Indeed—have rebounded in recent months.

Mixed/neutral factors:

Job availability. Averaging across the measures of job openings from JOLTS, Indeed, and LinkUp, we estimate that job openings were roughly unchanged in June, and the measures from Indeed and LinkUp were stable in July (Exhibit 4). The Conference Board labor differential—the difference between the percentage of respondents saying jobs are plentiful and those saying jobs are hard to get— edged down by 0.7pt to +3.1 in July.

Employer surveys. The employment component of our manufacturing survey tracker increased in July (+0.9pt to 51.9) while the employment component of our services tracker declined (-0.7pt to 49.8). However, the signal from survey data has been less useful—and at times misleading —during the post-pandemic period and thus has little bearing on our payrolls forecast.

We estimate average hourly earnings rose 0.3% month-over- month in July, reflecting neutral calendar effects.

We estimate that the unemployment rate rebounded 0.1pp to 4.3% in July, above consensus of 4.2%, reflecting a stabilization in continuing claims but potential upward pressure from residual seasonality—the unrounded unemployment rate has increased by 0.12pp on average in the last two Julys—and the reversal of June’s large decline in participation that applied modest downward pressure on the unemployment rate via compositional effects (i.e., the June decline in participation was concentrated on cohorts that have unemployment rates that are slightly higher than the national average).