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Good Morning!
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Now let’s break down what actually moved markets this past week and what to watch next.
Market Recap
This was a whipsaw week defined by three colliding forces: the Federal Reserve meeting, the busiest stretch of mega-cap tech earnings, and more volatility in oil. Stocks briefly dipped into correction territory before staging a powerful recovery, finishing the week higher and closing out a turbulent July with the Dow posting its fourth straight winning month.
The most important story was the bond market. On Wednesday, the Fed left rates unchanged, as expected. The bigger development was longer-term Treasury yields spiking to their highest levels since 2007, with the 30-year climbing above 5.2%. The concern is that investors are losing confidence the Fed will get inflation under control. This matters for our readers because rising long-term yields push up borrowing costs and weigh most on the smaller, rate-sensitive companies we focus on.
The frustrating part is that the actual data was reassuring. The Fed's preferred inflation gauge showed prices cooling in June, and second-quarter growth came in at a modest 1.5%, with consumer spending holding up. Normally that would calm the bond market, but yields kept climbing anyway, driven by swings in oil and doubts about the Fed's resolve.
The other headline was a dramatic round-trip in technology stocks. Midweek, a brutal chip selloff pushed the Nasdaq into a technical correction. Then mega-cap earnings flipped the mood: a major software and cloud company surged 16% in a single session, its largest one-day value gain of any stock ever, and a leading online retailer jumped on strong results, suggesting its AI investments are paying off. But the market was discriminating, punishing a major consumer-tech giant that gave a soft forecast. Investors are now rewarding AI spending that shows returns and little else.
Oil remained the wild card, swinging between roughly $72 and $102 during July before settling around $88 as Middle East tensions kept the supply outlook uncertain. That range is exactly why the bond market is so on edge.
One encouraging thread for smaller companies continued underneath it all. As money rotated out of expensive chipmakers, the equal-weighted S&P 500 hit record highs, a sign of the broadening participation that tends to benefit overlooked small and mid-sized names, though it is fighting the headwind of rising yields.
The bottom line: the market proved resilient, recovering from a correction scare to finish July higher. Cooling inflation and strong tech earnings were the bright spots, but surging long-term yields are the clear risk, and they weigh most on smaller companies.
What's Coming Next Week
The marquee event is the July jobs report, due Friday. The labor market has been cooling, and this report will show whether that softening is stabilizing or accelerating. Given the focus on the Fed, it could meaningfully shift rate expectations.
The bond market itself is the other thing to watch. After yields spiked to their highest since 2007, whether they stabilize or keep climbing is arguably the single most important factor for small caps right now. Easing would let the broadening rally continue; more rising would pressure smaller names.
The week also brings fresh manufacturing and services readings, plus continued earnings from many small and mid-cap companies. And oil remains the overriding wildcard, since where energy goes next will drive inflation expectations and the bond market.
The bottom line: the jobs report and the direction of long-term yields matter most. The market enters August with momentum, but surging yields are the risk to watch.
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SmallCapStocks Team
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