On August 1, 2026, although the U.S. stock market was closed for the weekend, Friday's (July 31) close still captivated global investors. The July nonfarm payrolls report from the U.S. Department of Labor, released that day, comprehensively beat expectations, instantly igniting a fierce bull-bear battle in the market.
Nonfarm Payrolls Ignite Market, Rate Hike Expectations Reheat
According to the U.S. Bureau of Labor Statistics, July nonfarm payrolls rose by 287,000, well above the market expectation of 220,000; the unemployment rate held at a low of 3.8%; average hourly wages rose 4.3% year-over-year, above the prior 4.1%. This strong jobs report undoubtedly added fuel to the economic soft-landing narrative, but it also put the Federal Reserve under greater tightening pressure.
After the data release, federal funds futures showed the probability of a 50-basis-point rate hike in September jumped to 72% from 45%. The market instantly switched from "recession trading" to "tightening trading." Treasury yields rose across the board, with the 10-year yield briefly hitting a high of 3.95%. Against this backdrop, the three major U.S. stock indexes closed with sharply divergent performances.
Nasdaq Hits Another Record High, Tech Stocks Steal the Show
Driven by sustained strength in AI and cloud computing businesses, the Nasdaq Composite closed at a record high on Friday, up 1.2% to 19,845.32. Large-cap tech stocks including Apple, Microsoft, and Google rallied. Apple rose for a third straight day after beating earnings expectations, with market cap returning to $3.2 trillion. Nvidia broke above $600, surging 4.6% in a single day, lifting the semiconductor sector.
The strong logic for tech stocks: although the payrolls data reinforced expectations of monetary tightening, it did not undermine the foundation of improving corporate earnings. On the contrary, capital expenditure on AI computing power is still accelerating, and demand from cloud providers and data centers for chips far exceeds supply. Several investment banks noted in recent reports that profit growth of tech giants is expected to expand further in the second half, rationalizing valuation premiums.
Tech Stocks Are Splitting: Software Outperforms Hardware
Notably, the tech sector itself is diverging. Software-service names like Salesforce and Adobe performed strongly, while hardware makers such as HP and Dell were relatively weak. This reflects the market's preference for the "soft power" tied to AI and data services over traditional hardware sales.
Dow Under Pressure, Cyclicals Hit by Profit Taking
In stark contrast to the Nasdaq's heat, the Dow Jones Industrial Average fell 0.4% on Friday to 35,120.68. Among heavyweight stocks, JPMorgan and Goldman Sachs dropped 1.8% and 2.1%, respectively, leading blue-chip losses. This was mainly because the strong payrolls data boosted rate-hike expectations, offsetting the benefit of improved bank net interest margins with worries about an overheating economy. In addition, consumer and healthcare-related stocks such as UnitedHealth Group and Home Depot weakened due to rising costs.
The S&P 500 was mixed, closing flat at 5,620.55. By sector, information technology and communication services led gains, rising 1.6% and 0.9%, respectively, while energy, materials, and industrials fell 1.2%, 0.8%, and 0.5%, reflecting a clear rotation from cyclicals to growth stocks.
Market Analysis: Why Didn't Strong Data Lift Everything?
Normally, strong payrolls data boosts stocks, but this time the market showed a rare "K-shaped" divergence. A senior macro analyst said: "The market is repricing the Fed's tightening path. Rising rates are unfavorable for high-valuation growth stocks, but the AI narrative is too strong, so investors prefer to cluster in tech rather than touch rate-sensitive cyclicals."
Another key factor is the earnings season catalyst. To date, nearly 70% of S&P 500 companies have reported Q2 results, with tech leaders beating earnings expectations by as much as 82%, compared with only 58% for industrial companies. Fundamental strength directly determines investor sentiment.
Next Week Outlook: Dense Data Calendar, Beware High-Level Volatility
Next week brings a host of key U.S. data, including July ISM Manufacturing PMI (Monday), June factory orders (Wednesday), and July CPI (Thursday). CPI is especially important; a rebound in inflation could further lift rate-hike expectations and pressure high-valuation tech stocks.
Additionally, multiple Federal Reserve officials will speak, with markets hoping for clues on the September rate decision. If any official turns hawkish, the risk of a short-term pullback cannot be ignored. On the technical front, the Nasdaq has entered overbought territory, with the RSI near 75, suggesting potential profit-taking pressure.
Trading Strategy Suggestions
- For investors holding tech stocks: Continue holding core AI leaders, but manage positions carefully and consider options hedging to guard against sudden downside shocks.
- Conservative investors: Consider defensive sectors with higher dividend yields, such as utilities and consumer staples, but avoid financial-sector volatility early in the rate-hiking cycle.
- Short-term traders: Closely track Tuesday's JOLTS job openings data. If the labor market shows signs of cooling, it could trigger a rebound.
Overall, the U.S. market maintains a bullish tone supported by "strong data plus strong earnings," but structural risks are accumulating. Investors should watch for valuation compression caused by rapidly rising rates and avoid blindly chasing hot short-term stocks. Hangu Financial Research will continue tracking real-time markets to help safeguard your investment decisions.
