U.S. stocks rebounded last week as Big Tech earnings from Microsoft and Amazon and renewed investor interest in AI-related sectors offset concerns over Federal Reserve policy and rising bond yields. The Dow Jones Industrial Average rose 1%, the S&P 500 gained 1%, and the Nasdaq climbed 1.6% for the week, snapping multi-week losing streaks. However, monthly performance remained mixed, with the S&P 500 down 0.13% and the Nasdaq down 3.2% in July.
Fed signals mixed on inflation; bond yields hit multi-year highs
The Federal Reserve left interest rates unchanged at its July meeting, but three of the 12 policymakers voted for a rate hike, reflecting growing unease over persistent inflation. Fed Chairman Kevin Warsh emphasized the central bank’s readiness to act if necessary, though markets remained skeptical. The 10-year Treasury yield surged above 4.7%, while the 30-year yield topped 5.2%—levels not seen since 2007. Stocks initially plunged on the yield spike, with the Dow dropping 2.2% in a single session, before recovering later in the week.
AI trade reverses amid earnings-driven optimism
The week’s volatility was also shaped by a reversal in the “long AI hardware, short software” trade, which had dominated markets earlier in the year. Forced selling exacerbated declines in AI-related stocks, but a shift in sentiment followed better-than-expected earnings from Microsoft and Amazon. Microsoft forecasted strong cash generation through fiscal 2027, while Amazon reported its strongest cloud growth in over four years, easing concerns about the sustainability of AI spending. Apple, however, weighed on tech gains after issuing a disappointing forecast, citing supply chain constraints tied to the AI-driven data-center boom.
Global markets reflect uneven recovery
While U.S. equities staged a rebound, global markets showed divergent trends. South Korea’s KOSPI surged 17.91% on July 31 after earlier losses, though it remained 30% below its all-time high. European stocks, by contrast, showed little movement, with the STOXX 600 down 0.12% and the FTSEurofirst broadly flat. Currency markets remained volatile, with the yen under scrutiny after Japanese authorities intervened to support its value.
Market sentiment stabilizes, but risks linger
The CBOE Volatility Index (VIX) fell 13.94% to 15.99, signaling reduced panic, though analysts warned that August’s historically volatile trading patterns could reintroduce uncertainty. Earnings from traditional sectors like Boeing and Coca-Cola also drew investor attention, contributing to a rotation out of tech-heavy stocks. Despite the weekly gains, the month’s mixed performance underscored ongoing concerns about inflation, bond yields, and the long-term impact of AI investment on corporate profitability.