US equities closed last week on a strong note, with the S&P 500 and Nasdaq Composite reaching fresh milestones. The S&P 500 hit a record high of 7,794 points, while the Nasdaq climbed to 26,690, its highest level since mid-June. The rally was fueled by a robust earnings season and a softer-than-expected jobs report that dampened expectations for further Federal Reserve rate hikes.
Jobs report fuels rate-cut hopes
Last Friday's nonfarm payrolls data showed the US economy lost 23,000 jobs in July, with the government sector leading the decline. The Bureau of Labor Statistics also revised June's job growth downward, signaling persistent labor market weakness. Additionally, the quality of new jobs has come under scrutiny, with many positions concentrated in social assistance and healthcare.
The weak labor data has led investors to reassess the Fed's policy path. Bond yields have retreated, with the 10-year Treasury falling from 4.75% to 4.69% and the two-year yield dropping to 4.2% from a recent high of 4.37%. Market odds of a rate hike this year have also declined, providing a tailwind for equities.
CPI report in focus
The next major catalyst for stocks is Wednesday's consumer price index (CPI) report. Economists expect headline CPI to rise 0.1% in July, following a 0.4% decline in June. On an annual basis, inflation is projected to ease to 3.4% from 3.5%, partly due to lower oil and gasoline prices. Core CPI, which excludes food and energy, is forecast to dip to 2.5% from 2.6%.
A cooler inflation reading would reinforce the case for the Fed to hold rates steady, which could further support equity valuations. Conversely, a hotter-than-expected number might reignite rate-hike fears and pressure stocks.
Earnings season continues
The ongoing earnings season remains a key driver for the major indices. Blended earnings growth for S&P 500 companies stands at 50%, with technology names like Microsoft, SanDisk, and Western Digital contributing significantly. This week, investors will hear from Applied Materials, CoreWeave, Simon Property Group, Cardinal Health, Cisco, and Ross Stores. These reports will offer additional insights into corporate health across sectors.
For a broader view of market sentiment, see Nasdaq futures climb 100 points ahead of the CPI release.
Geopolitical risks and oil
Markets are also monitoring the US-Iran situation, which remains tense but has shown signs of de-escalation. Iran has presented demands for reopening the Strait of Hormuz, including sanctions relief and a US military withdrawal from the area. Crude oil futures have continued to rise on Hyperliquid, and any diplomatic breakthrough could ease supply concerns and boost risk appetite.
Investors are also watching the impact of recent earnings on sector performance. For instance, Cloudflare's AI-driven outlook and Airbnb's travel boom highlight divergent trends in tech and consumer discretionary.
As the week unfolds, the CPI report and earnings will likely dictate the near-term direction for the S&P 500 and Nasdaq. A benign inflation print could extend the rally, while any surprises may trigger volatility.
This article is for informational purposes only and does not constitute financial advice.
