Weekly Market Update
Week #31 — Market Update for July 27-31, 2026
AI spending passed a harder test. The bond market did not relax.
2 Aug 2026 · YK Research
Contents
Executive Summary
U.S. equities rose, but the index gain hides a violent earnings split. SPY gained 1.1%, the Dow rose 1.1%, and QQQ added 0.5%. Small caps finished flat. Microsoft jumped 21.8%, Amazon gained 17.0%, and Alphabet rose 11.4%. Apple lost 7.2%, Meta fell 6.5%, and the semiconductor ETF dropped 3.7%.
The difference was cash conversion. Microsoft and Amazon showed that AI infrastructure can drive cloud growth and operating profit now. Meta showed how quickly free cash flow disappears when spending runs ahead of revenue. Apple beat June-quarter revenue expectations, but its outlook brought supply constraints back into focus. Investors rewarded evidence, not the size of the budget.
This was healthier than another broad AI chase. Equal weight gained 0.7%. Financials and staples rose 1.1%. Global ex-U.S. gained 1.4%, Europe rose 2.5%, and Japan added 1.3%. Leadership widened even while chip stocks fell.
The macro picture was less friendly. Real U.S. GDP grew at a 1.5% annual rate in the second quarter. Growth slowed, but consumer spending and AI investment kept domestic demand firm. June core PCE inflation rose 0.1% from May and 3.3% from a year earlier. Initial jobless claims stayed low at 197,000.
The Fed held its target range at 3.5% to 3.75%. Three voters wanted a 25 basis point hike. That is the key policy signal. Oil fell and headline PCE eased in June, yet the committee still described inflation as elevated and several members wanted tighter policy.
Bonds heard the warning. The 2-year yield fell 5 basis points to 4.28%, but the 10-year rose 6 basis points to 4.75% and the 30-year rose 11 basis points to 5.27%. The curve steepened. TLT lost 1.2% and real estate fell 1.9%. The market priced less near-term inflation pressure and more long-term inflation, fiscal and term-premium risk.
Oil proxies gave back part of July's war premium. USO fell 5.5% and the Brent proxy lost 4.2%. Copper gained 3.2%. Bitcoin fell 1.9% while ether held flat. This was relief in energy, not a collapse in global demand.
The positioning message is simple. Own AI businesses that can show revenue and cash against spending. Avoid treating the whole supply chain as one trade. Keep duration light while the long end rises. This read changes if the 10-year falls below 4.5% and semiconductor leadership returns without help from one-day earnings gaps.
US Stock Market
SPY rose 1.1% and equal weight gained 0.7%. That is decent breadth. The problem sat inside technology. Microsoft's result added almost a quarter to its market value in one session, while semiconductors lost 3.7% for the week. QQQ gained only 0.5% despite huge moves in Microsoft, Amazon and Alphabet.
That gap sets a higher bar for the AI trade. Amazon reported 37% AWS growth and raised investment plans. Microsoft paired AI demand with enough cash generation to calm the market. Meta's free cash flow fell as spending rose, and the shares dropped. The market is separating users of compute from sellers of compute, then grading both on return timing.
Apple's quarter was strong. Revenue reached $109.4 billion, up 16% from a year earlier, and earnings per share rose 29%. The shares still fell because the forward revenue view missed expectations and supply constraints remain. A good reported quarter cannot carry a stock when the next quarter weakens.
Leadership Read
Microsoft and Amazon tied infrastructure spending to current cloud demand.
The market stopped treating every AI supplier as an automatic winner.
Breadth improved outside the largest technology names.
Higher long yields kept rate-sensitive equities under pressure.
Global Markets
Global ex-U.S. equities gained 1.4%. Europe rose 2.5%, Japan added 1.3%, and emerging markets gained 1.2%. The dollar's decline helped foreign returns for U.S.-based investors, but local fundamentals improved too.
The eurozone economy grew 0.4% in the second quarter, faster than expected. July inflation rose to 2.9%. Better growth supports earnings, while higher inflation limits the ECB's room to cut. Europe can outperform in that mix if profits rise faster than bond yields.
China sent the weaker signal. Official factory activity contracted in July as domestic demand softened and export front-loading faded. Emerging equities still rose, helped by a weaker dollar and firm copper. That divergence needs watching. Asset prices are leaning on liquidity while China's factory data says final demand is not yet secure.
Cryptocurrency Market
Bitcoin fell 1.9% to about $62.9k. Ether was flat near $1,861. Crypto lagged equities even as the dollar weakened. That removes the easy explanation that tighter dollar liquidity caused the move.
Read-Through
Bitcoin failed to benefit from a softer dollar and large technology gains. That is a mild warning about speculative demand, not a system-wide stress signal. Credit held up, ether was stable, and there was no broad rush for cash. A break below recent support alongside wider high-yield spreads would matter more.
Economic Indicators, Statistics and News
United States
Real GDP grew at a 1.5% annual rate in the second quarter, down from 2.1% in the first. Imports held back the headline while consumers and AI capital spending supported domestic demand. This is slower growth, not a demand break.
June headline PCE prices fell 0.1% from May but remained 3.7% higher than a year earlier. Core PCE rose 0.1% on the month and 3.3% on the year. The monthly relief predates much of July's energy shock, so the Fed cannot assume it will persist.
Initial claims rose to 197,000 from 188,000 but stayed below expectations. Layoffs remain low. The July jobs report next week will test whether hiring has weakened enough to offset that stability.
Federal Reserve
The Fed held rates at 3.5% to 3.75%. Beth Hammack, Neel Kashkari and Lorie Logan voted for a quarter-point hike. The statement said activity was expanding at a solid pace and inflation remained elevated. A divided hold is tighter than a routine hold.
Global
Eurozone
Second-quarter GDP grew 0.4%. July inflation reached 2.9%. The region now has better growth and less policy support. That is good for banks and cyclical earnings, but it raises the hurdle for rate-sensitive sectors.
China
Official manufacturing activity slipped back into contraction in July. Weak demand and the end of export front-loading outweighed policy support. Copper and emerging stocks moved the other way, leaving a clean test for August data.
Japan
The yen proxy gained 2.9% after intervention to support the currency. Reports that the U.S. Treasury discussed or joined yen buying made this more than a normal policy signal. Exporters gained for the week, but a stronger yen reduces the translation benefit that helped Japanese profits.
Foreign Exchange Markets
The dollar proxy fell 1.4%. Euro and sterling proxies gained about 1.5% and 1.2%. The yen proxy rose 2.9%, with official intervention driving the largest move.
The dollar weakened even as long Treasury yields rose. That tells us the move was not a simple U.S. rate advantage trade. Intervention, better European growth and concern about the U.S. long end all mattered. A softer dollar helps global equities and commodities, but this week bitcoin did not take the invitation.
Commodities and Energy Markets
The U.S. oil proxy fell 5.5% and the Brent proxy lost 4.2% as supply flows improved and days passed without a fresh U.S.-Iran escalation. Gold was flat. Copper gained 3.2%. The mix says the market removed part of the energy war premium without pricing a global recession.
Commodity Read
Cheaper oil helps consumers and near-term headline inflation. It did not rescue long bonds. That distinction matters. If oil keeps falling while the 30-year yield stays above 5.2%, the long-end problem is fiscal supply and term premium, not only energy. Copper's strength also argues that investors still expect capital spending to support industrial demand.
Debt and Fixed Income Markets
The curve steepened. The 2-year yield fell from 4.33% to 4.28%, while the 10-year rose from 4.69% to 4.75% and the 30-year climbed from 5.16% to 5.27%. Short rates acknowledged lower oil and slower GDP. Long rates focused on persistent inflation, strong investment and the risk that buyers demand more compensation to hold duration.
Down 5 basis points as headline inflation eased.
Up 6 basis points despite weaker oil.
Up 11 basis points and the clearest portfolio warning.
TLT fell 1.2%. Investment-grade bonds were flat and high yield gained 0.3%. Credit did not confirm recession risk. The pain stayed in duration. That favors businesses with near-term cash flow and hurts real estate, long-dated growth and leveraged balance sheets.
What to Watch Next Week
- The July U.S. jobs report. Payroll growth, unemployment and wages will decide whether the Fed's three hike dissents look early or justified.
- ISM manufacturing and services. The second-quarter GDP report showed firm domestic demand. August starts with a cleaner read on whether that carried into July.
- The 30-year Treasury yield. A move through 5.3% would tighten financial conditions even if the Fed holds. A reversal below 5.1% would reduce pressure on real estate and long-duration equities.
- Semiconductor leadership. Cloud platforms passed the earnings test while chips fell. A healthy AI trade needs both demand owners and suppliers to show cash returns.
- Oil after the 5% pullback. Another decline would help headline inflation. Renewed conflict or supply disruption would return the shock to rates.
- China's private PMI and policy response. Emerging assets rose through weak official factory data. That gap cannot widen forever.