Stocks tapped on the brakes after a strong summer rally. 

• The S&P 500 shed 2.4% for its worst week since May in what was a hectic week of macro headlines and major earnings announcements. The Nasdaq Composite lost 2.2%, despite gangbuster profits reported by the mega-caps. 

• Recession worries are back in focus following a very weak July jobs report that featured sharply negative revisions to employment figures from May and June. Investors have a lot to digest in what will be a data-light week ahead.

The Cboe Volatility Index (VIX) was calm, under 15, mid-week, but by the finish on Friday, Wall Street’s fear gauge had spiked to above 20. 

• The jitters came right on cue—August and September have been the only negative months for stocks over the past 15 years. Moreover, volatility kicked up precisely this time last year and for similar reasons. 

• Adding to the drama was news on Friday afternoon that President Trump fired the Bureau of Labor Statistics (BLS) Commissioner Erika McEntarfer. 

• An hour later, Fed Governor Adriana Kugler announced she is resigning from the Fed effective August 8.

Hot takes came in fast and furious over the weekend, but it often pays to simply analyze price action to get a true sense of the macro landscape. 

• Digging into the sectors, Utilities (XLU) was the lone winner, up 1.5% in a risk-off week. Power providers are currently influenced by several factors. The growth of artificial intelligence has led to increased electricity demand from data centers, which may positively impact utility companies. Second, utility companies are defensive; when economic growth fears perk up, many fund managers ditch cyclical stocks in favor of safety plays. 

• Adjacent to the latter narrative, lower interest rates often benefit high-debt, capital-intensive power generation companies. Last week, go-to AI stocks outperformed, including Constellation Energy (CEG), Vistra Corp (VST), and NRG Energy (NRG). Utilities and Industrials (XLI) are the best-performing S&P 500 sectors year-to-date.

Worst last week was Materials (XLB). 

• Among the most economically sensitive niches, it was not only struck by an uptick in recession vibes, but adverse tariff news cast a dark cloud over the space. 

• On Wednesday, just as the Fed released its policy statement, the White House tweaked its trade policy on copper imports. President Trump exempted refined metals from tariffs, a surprise move that resulted in copper futures plummeting a full $1 per pound (nearly 20%) in a matter of seconds. 

• That shock to the commodities market was overshadowed by the Fed meeting, but investors in mining stocks, such as Freeport-McMoRan (FCX), felt the blow. Overall for the week, the SPDR S&P Metals and Mining ETF (XME) plunged 6.7%, its worst week since early April.

The most important sector, Information Technology (XLK), was only modestly lower during what was an earnings-heavy week. 

• Microsoft (MSFT) and Apple (AAPL) reported Q2 results, and reports from Meta Platforms (META) and Amazon (AMZN) in the Communication Services (XLC) and Consumer Discretionary (XLY) sectors, respectively, obviously impacted all tech-related shares. 

• Microsoft soared after reporting monster growth in its Azure cloud-storage business, confirming a broader trend that Alphabet (GOOGL) had indicated in its second quarter release the previous week. MSFT jumped 10% last Wednesday night following the top- and bottom-line beat, eclipsing the $4 trillion market cap level for the first time, but it ended the week up just 2%. 

• AAPL numbers and outlook were less inspiring. The embattled tech giant’s stock drifted higher post-earnings, but then fell flat on Friday, losing 5% for the week. 

• Away from the technical I.T. sector, META produced a home-run quarter as it monetizes its AI investments. Shares vaulted to all-time highs after the bell on Wednesday, and CEO Mark Zuckerberg leapfrogged Jeff Bezos to take the No. 3 spot on the world’s richest list. 

• Soaring AI capex plans was the story from the Mag 7 stocks that have reported so far; considering the new full-expensing provision in the One Big, Beautiful Bill Act (OBBBA), the firehose of investment projects should continue. AMZN is the problem child, however. Alphabet and Microsoft cloud growth may be taking away from Amazon Web Services (AWS). While AWS grew 17.5% year-over-year, Google Cloud reported a 32% annual increase, and Microsoft Azure added a whopping 39% to its top line. AMZN shares fell big on Friday.

There was no shortage of news within large caps. Among small- and mid-cap stocks, macro uncertainty weighed on price action. 

• The S&P MidCap 400 ETF (MDY) shed 3.5%, while the iShares Russell 2000 ETF (IWM) lost 4.2%. It was MDY’s worst week since May and IWM’s biggest loss going back to April. 

• The recent decline in the S&P MidCap 400 ETF (MDY) and the iShares Russell 2000 ETF (IWM) may warrant monitoring by investors, particularly in light of the recent July employment report. You see, if interest rates drift lower but GDP holds steady, that could be the perfect combination for the SMID space, which doesn’t have the secular tailwinds that big-cap tech companies sport. 

• Also, perhaps some macro stress will force smaller firms to adopt AI more quickly, which could ultimately boost their collective productivity for the next up-cycle. That's just something to mull over, as seemingly all the attention is on large-cap AI darlings. 

• Technically, IWM is damaged; it's been down all five sessions last week and’s back below both its flat 200-day moving average and its 50-day moving average. Like the S&P 500, both IWM and MDY tend to struggle in August and September.

Turning to overseas stocks, the Vanguard FTSE All-World ex-US ETF (VEU) dropped 3% in what was a global sea of red last week. 

• The US Dollar Index (DXY) was a wildcard; the greenback jumped to its best level since May before the July payrolls report, but then tanked when the data crossed the wires. VEU underperformed sharply from Monday through Thursday amid a rising dollar, but it posted solid alpha to close the week. 

• Friday was also President Trump’s tariff pause deadline. New, broadly higher import duties are set to take effect this Thursday. Futures drifted lower on that news last Thursday night, but losses were nothing like we saw on the evening of Liberation Day, April 2. 

• Investors seem content with a new, call it, 15% effective tariff rate, and the administration has made it implicitly clear that they are open to working deals even after August 7. Mexico, Canada, India, and China are the only major trade counterparts without fresh agreements, so we expect headlines to cross in the coming weeks regarding terms with those countries.

The bond market had plenty to take in, too. 

• Friday’s July employment report stole the show, but for all the wrong reasons. The 73,000-job gain was less than the 104,000 consensus forecast, but what stunned Wall Street was a massive 258,000 negative revision to May and June payrolls. Other than April 2020, it was the largest two-month change since at least 1979, underscoring sudden fragility in the labor market. A chunk of the May-June revisions were to government jobs, so the private sector is likely not falling off a cliff. 

• The three-month average of employment gains is now the lightest since 2020, and without Education and Health Services, July would have had a negative headline jobs number. 

• It wasn’t all bad, though. Average hourly earnings was steady, while average weekly hours worked ticked up. Still, the unemployment rose to the highest since 2021, and the U-6 underemployment rate ticked up to 7.9% from 7.7%. 

• All told, the yield on the 2-year Treasury yield cratered from 3.95% to 3.68%, more than a quarter-point cut (the bond market may have done the Fed’s dirty work for them!). 

• The Q2 GDP report was released last Wednesday, with the June PCE inflation reading hitting the tape on Thursday. Between the two was the Fed meeting. Chair Powell sounded hawkish and was in no hurry to cut rates; that may change after the dismal July payrolls report. Drama will also be high as President Trump gets ready to pick a replacement for Kugler. 

Wrapping up with commodities, oil (USO) had another solid week, rising 3% even with a Friday dip. 

• OPEC and its allies may move to increase production, but fresh sanctions on Russia have kept a bid to black gold. Furthermore, geopolitical tensions are on the rise after the president ordered two nuclear submarines “to be positioned in the appropriate regions” in case tensions flare up with Russia. (Toss that into the pile of macro wildcards right now.) 

• Gold (GLD) settled at the highs on Friday, gaining 0.8%. As for bitcoin (IBIT), it lost 3% in a volatile week, with the token trading at a three-week low of $114,000 over the weekend.

Weekly Calendar Look Ahead

Macro onlookers get a chance to catch their breath this week. The data deck is fairly light, but it’s not totally absent of volatility catalysts. ISM Services PMI, jobless claims, consumer inflation expectations, and productivity numbers are the highlights. Let's get to it.

Monday’s notable item is a final read on June Durable Goods and Factory Orders. 

• This is not typically a market-moving report, so the media’s focus will be on the state of the US economy after last week’s data deluge. 

• Treasury bill auctions occur later in the morning, while July vehicle sales numbers roll in throughout the day. 

• Elsewhere, the IPO market remains hot after last week’s surge in Figma (FIG); Firefly Aerospace (FLY) is expected to price its IPO and start trading later this week. 

• At 2 p.m. ET Monday, we’ll get the Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices, which offers a glimpse into the US lending and borrowing situation.

Tuesday features June import and export numbers before the bell, along with weekly Redbook retail sales. 

• A final update to S&P Global PMIs prints at 9:45 a.m. ET before the 10 a.m. ET ISM Services PMI. The latter’s version will be more important, and the consensus calls for an increase to 51.5, indicating expansion in the services sector of the US economy. The Employment sub-index will be telling, but it might not mean much since we have the July nonfarm payrolls report in hand. Services employment accelerated last month, so we could see a decent ISM Services Employment PMI (above the 47.2 consensus target). 

Wednesday cranks up the Fed speak volume. 

• As Kugler departs, we’ll hear from Governor Cook and Boston Fed President Collins mid-day and the San Francisco Fed’s Daly in the afternoon. All three are considered slight doves. 

• MBA Mortgage Applications is released in the premarket, and the going 30-year mortgage rate fell to nearly its lowest level since October 2024 on Friday.

Thursday is busier. 

• President Trump’s new tariff rates take effect at midnight, and Initial and Continuing Claims are then released at 8:30 a.m. ET along with Q2 Nonfarm Productivity figures. 

• Layoffs remain low, but hiring is also muted right now. First-time unemployment filings are very tame at 220k today, making the July jobs report all the more concerning. July's Challenger Job Cuts announcement was an increase from 12 months ago, but the total number was not high compared to the 2015-2025 average. 

• This is where productivity enters the equation; economists expect a firm 2.5% quarterly increase in productivity (output divided by hours worked). As AI infiltrates corporate America, the hope is that earnings increase at a faster rate than costs, and after a disappointing Q1 productivity report, this week’s Q2 update will be even more critical. 

• Elsewhere, the Fed’s Bostin and Musalem speak later in the morning, just before the New York Federal Reserve’s July Consumer Inflation Expectations survey. A 30-year Treasury auction takes place in the afternoon before Consumer Credit and the Fed’s balance sheet update hit.

Friday is quiet. 

Fiscal Policy Framework

This administration doesn’t believe in weekends. Seemingly each recent Saturday-Sunday has featured breaking news that has impacted price action the following Monday. A flurry of policy developments from the White House, particularly on trade, tariffs, monetary policy, and digital assets, has kept our team busy. We are on the lookout for new trade terms between the US and Mexico and China, but discussions there could be drawn out to early in the fourth quarter. Pharma stocks and chip companies, meanwhile, remain on edge with potential future sectoral levies on drugs and semiconductors.

President Trump set an August 8 deadline for Russia to agree to a ceasefire with Ukraine. If that is violated, geopolitical tensions could spill over into financial markets. A secondary set of tariffs might also be inflicted on Putin. 

Back home, the POTUS continues to scold Powell for not lowering interest rates, and he now has good cause. In the wake of the July payrolls report, Fed Governor Waller was vindicated for his dissent at the July FOMC meeting, and there now stands a more than 80% chance that the Fed cuts in September. In the race for the next Fed chair, Kevin Warsh has emerged as the front-runner, now with a 32% implied chance per Polymarket.

Eyes will soon shift to a possible government shutdown at the end of the third quarter as Congress goes on August recess.

Risks & Opportunities

We have called out potential volatility in August and September, and here we are with the VIX now sporting a 20-handle. During periods of potential market volatility, some investors may consider a more defensive investment posture, particularly if labor market indicators show signs of weakening. The Fed will be ready to cut rates, but stubborn inflation stands in the way of aggressive monetary policy easing; the PCE Price Index updated last week revealed that consumer price increases remain materially above the Fed’s 2% target. Core goods inflation has been on the rise, even before higher reciprocal tariffs have gone into effect. 

There may be opportunities in some of the first-half winners that took a breather in July. Gold, for example, appeared to break down on the chart before Friday’s 2% boost. Should gold prices surpass the $3,400 level, it would represent a significant upward movement that could approach the all-time high of $3,500. A continued retreat in the U.S. dollar could potentially improve the returns of non-U.S. stocks when measured in dollar terms. 

We should know more this week as to whether Friday was a classic summer growth scare or if there is more macro turmoil in the cards over the back half of the third quarter.

Quick Hits

• The bond market prices in four to five quarter-point cuts now through 2026, but about half of that is crash risk, so our current analysis suggests that a scenario of less aggressive monetary easing is plausible if the U.S. economy continues to show signs of growth next year.

• Real consumer spending has turned flat in recent months, highlighting emerging caution in household spending.

• The oil rig count fell for a 14th straight week—tough times in the energy patch.

• S&P 500 concentration: the top 10 stocks now account for a record-high 40% of the SPX market cap. But also a new high in earnings share, 30%.

• The Mag 7 is expected to have grown EPS by 26% in Q2, while the “Other 493” has just a 4% bottom-line growth rate. Small-cap EPS may have declined YoY in Q2.

• President Trump fired off six Truth Social posts directed at the Fed and/or Powell on Friday, a record daily count.