Wall Street Bets on a Slowdown: Equity Records, Treasuries Rally, Oil Slides
Week 32 · 3–7 August 2026
S&P 500 +3.58% and Nasdaq +5.19% in the best week since April; US payrolls –23,000 and 10Y Treasury at 4.65%, down 10 bp. Brent off more than –8%, gold up more than +7%: rate relief supports risk assets, but the macro backdrop remains bifurcated.
The market reads the weak payroll print as a brake on the Fed
Week 32 rewarded risk because the market interpreted the sharp deterioration in US labour as a constraint on further Federal Reserve rate hikes. The move was powerful but non-linear: equities at highs and falling yields coexist with a sharp gold rally, still-elevated ISM prices and a labour market that has cooled far more than activity indicators would suggest.
The data point that closed the week was unequivocal: July non-farm payrolls fell by 23,000, against Reuters consensus expectations of +80,000, while May and June were revised down by a combined 103,000. Wall Street chose to read the figure through the lens of the Fed's reaction function: the implied probability of a September hike fell towards 44%, Treasuries rallied and the Nasdaq accelerated. The critical point is that this is not a straightforward recessionary narrative: the ISM manufacturing PMI rose to 55.6 and services to 54.1. The economy is therefore exhibiting a divergence between still-expansionary activity and a far weaker pace of job creation.
The decline in yields and a very strong earnings season have reopened the multiple-expansion channel, particularly in technology and growth. Confirmation remains conditional on the next inflation prints.
The 10Y Treasury moved from 4.75% on 31 July to 4.65% on 7 August. The market scaled back the premium for an imminent Fed hike following the payroll release.
Within the ISM services survey, the prices index rose to 70.3. Lower oil prices help, but Hormuz tensions and price pressures prevent the labour-market slowdown from being treated as automatically disinflationary.
1. Wall Street: the rally broadens again, but breadth still needs confirmation
Week-on-week changes, 3–7 August 2026. Equity indices in local currency; Brent on front-month futures. The bar represents relative magnitude within the group and not a historical scale.
The S&P 500, Nasdaq and Dow posted their largest weekly percentage gains since mid-April: +3.58%, +5.19% and +2.96% respectively. On Friday, market participation was decidedly positive, with advancers/decliners at 2.49:1 on the NYSE and 2.07:1 on the Nasdaq. This represents a genuine tactical improvement, but a single session is not sufficient to certify a structural broadening of breadth: confirmation must come from equal-weight indices, the percentage of stocks above their moving averages and the persistence of new highs.
The quality of the rally was also underpinned by earnings: 436 S&P 500 constituents had already reported, with 85.1% beating analyst estimates. This reduces, at least for now, the risk that the move is driven solely by duration. The key vulnerability remains selectivity: the same session saw extreme positive and negative reactions wherever guidance failed to meet already-elevated valuations.
| Market | Key data point | Regime reading |
|---|---|---|
| S&P 500 | +3.58% WoW; close 7,757.64 | Record high and sharp risk repricing following payrolls; positive confirmation, though sensitive to rates. |
| 10Y Treasury | 4.65%; −10 bp WoW | Relief on duration; remains approximately +46 bp relative to 2 January, so this does not constitute a structural normalisation. |
| Dollar Index | 99.50; −0.31% WoW | The dollar weakens as Fed rate-hike expectations are pared back, marginally easing global financial conditions. |
| Brent | $83.55; over −8% WoW | Geopolitical risk premium reduced on speculation of an Iran–Oman deal; the Hormuz risk, however, remains unresolved. |
| Spot Gold | $4,336.02; over +7% WoW | A softer dollar and lower rate-hike expectations lend support, yet gold's strength signals that hedging demand has not dissipated. |
2. The AI Earnings Test Broadens: Software, Infrastructure and Dispersion
This week the AI earnings test proved more instructive than a simple beat tally. Palantir raised its full-year guidance once again and demonstrated simultaneous growth across both US government and commercial segments; Caterpillar translated the data-centre boom into orders for machinery, construction equipment and power generation. AI capex is therefore generating measurable demand well beyond the semiconductor space.
Palantir now guides for full-year revenues of between $8.150 billion and $8.158 billion; Q2 revenues grew 93% to $1.94 billion. Caterpillar brought its backlog to $72.1 billion, with quarterly revenues up 24% and construction up 35%. These are two distinct proofs of the same chain: software monetisation on one side, physical infrastructure and electric power on the other.
Dispersion remains elevated and should be treated as information, not noise. Atlassian surged 35.3% following results and an outlook that exceeded expectations, while Trade Desk fell 21.9% after issuing a revenue guidance below consensus. With valuations stretched, the market continues to reward acceleration and visibility, but penalises any crack in the growth trajectory immediately.
| Company | Evidence | Reading |
|---|---|---|
| Palantir | 2026 revenue guidance $8.150–8.158bn; Q2 revenues +93%; US government +90%. | AI enterprise/government: strong validation of monetisation. |
| Caterpillar | Backlog $72.1bn; revenues +24%; construction +35%; power & energy +17%. | AI capex: concrete spillover into infrastructure, power and industrials. |
| Atlassian | +35.3% on Friday following earnings, revenues and quarterly forecast all above estimates. | The market continues to reward growth and positive guidance revisions. |
| Trade Desk | −21.9% on Friday after Q3 revenue guidance came in below expectations. | Elevated valuations leave minimal margin for execution shortfalls. |
3. Labour, the Fed and Treasuries: 'Bad News Is Good News' Has Its Limits
The July payroll report shifted near-term Fed pricing: −23,000 jobs against expectations of +80,000, with June revised to +20,000 and May to +63,000. The revisions stripped 103,000 positions from the two prior months. The participation rate also fell to 61.4%, while unemployment declined to 4.1%, partly because the labour force contracted.
The curve reacted accordingly. From 31 July to 7 August, the 2Y fell from 4.28% to 4.19%, the 5Y from 4.45% to 4.35% and the 10Y from 4.75% to 4.65%. Yet the year-to-date comparison remains stark: relative to 2 January, the 2Y is still approximately +72 bp, the 10Y +46 bp and the 30Y +33 bp. The bond market has granted relief, not reversed the 2026 repricing.
Here lies the main interpretive risk. Weaker labour data is positive for equities only as long as it produces lower rates without foreshadowing an earnings contraction and without reigniting inflation through an excessively accommodative policy mix. The upcoming CPI and PPI prints are therefore the real test of the narrative constructed on Friday.
4. Europe and Asia: new highs in Europe, far less uniform leadership in Asia
The STOXX 600 gained approximately 2% over the week and closed Friday at a new record, marking its fourth consecutive week of gains. The surprise is not merely a market one: Q2 earnings for STOXX 600 companies are now expected to grow by more than 22%, the strongest pace since the third quarter of 2022. Technology and healthcare led the final session, while data centre demand made its presence felt in Europe through the sharp re-rating of Kingspan.
In Asia, the reading must remain selective. China reported July exports up 23.9% year-on-year, with high-tech exports surging 40.7% and semiconductor export values nearly doubling in the first seven months: AI is supporting the external side while domestic demand and investment remain more fragile. South Korea provides the counterpoint: the KOSPI is still approximately 33% below its June peak, and Samsung Electronics and SK Hynix accounted for 76% of the market-capitalisation destruction during the sell-off. On Japan, the yen at approximately 157.6 per dollar remains heavily influenced by the joint intervention of the previous week: this is an FX signal to be read as a policy variable as well, not merely as a risk-sentiment indicator.
5. Oil down, gold up: this is not a contradiction
Brent closed at $83.55 and shed more than 8% over the week; WTI ended at $78.18 with a loss in excess of 7%. The market pared back the risk premium in the first part of the week on the possibility of an Iran–Oman agreement relating to the Strait of Hormuz. This channel helped reduce near-term inflation expectations and provided support to both bonds and equities.
The story, however, is far from resolved. Iran and Oman are discussing terms and fees for transit, while political, sanctions-related and insurance obstacles remain; prior to the war, approximately one-fifth of global oil and LNG flows passed through the Strait under normal conditions. Friday's rebound in Brent demonstrates that the geopolitical risk premium can return swiftly should negotiations stall.
At the same time, gold gained more than 7%, its best week since January, and the Dollar Index fell 0.31% to 99.50. The combined message is more telling than any single asset: the market is buying equity risk and duration, while maintaining an aggressive demand for hedges against the dollar, geopolitics and policy uncertainty. This is not a full-blown "risk-on without fear" environment.
6. The macro data does not signal recession: it signals divergence between activity, employment and prices
The ISM Manufacturing PMI rose to 55.6, its highest level since May 2022, with new orders at 56.7, production at 58.5 and manufacturing employment returning above 50. Services remained in expansion at 54.1, with business activity at 59.1 and new orders at 57.2; here, however, employment fell to 47.4 and prices climbed back to 70.3. This is the portrait of an economy that is producing and ordering, yet is becoming considerably more cautious on hiring and continues to face cost pressures.
Productivity data do not contradict this reading: in Q2, nonfarm productivity increased by an annualised 1.4% and unit labour costs by 1.3%; in manufacturing, productivity rose 1.9% while unit costs remained unchanged. The hypothesis of a controlled slowdown is therefore still defensible. It has not, however, been proven: the decisive question will be whether the decline in employment represents an efficiency adjustment or the beginning of a demand-driven slowdown.
7. Week 33 Map
Inflation does not surprise materially to the upside, the Fed remains on hold, and earnings continue to offset the cooling labour market. The rally consolidates without losing growth leadership.
CPI/PPI or renewed tensions over the Strait of Hormuz reopen the inflation channel precisely as the labour market deteriorates. Yields rise and multiple compression hits growth leadership.
Softer inflation, retail sales consistent with still-positive consumption, and no new energy shock. Declining yields are accompanied by a broadening of equity market participation.
8. Factors to Monitor in Week 33
| Factor | Event or Variable | Why It Matters | Signal to Watch |
|---|---|---|---|
| US Inflation | July CPI — 12 August, 08:30 ET | The first test of the "weak labour = Fed on pause" narrative. | Core and services: an upside surprise would immediately put renewed pressure on yields. |
| Producer Prices | July PPI — 13 August, 08:30 ET | Measures upstream pressure following still-elevated ISM Prices. | Confirmation or rebuttal of the disinflation implied by the decline in oil prices. |
| US Consumption | July Retail Sales — 14 August, 08:30 ET | Key to understanding whether the weaker labour market is already feeding through to demand. | Resilient consumption alongside moderate inflation supports the base scenario; broad-based weakness raises growth risk. |
| Rates & Fed | 2Y/10Y Treasuries and September pricing | The channel through which payroll data fed directly into equity multiples. | 10Y at 4.75% as the reference level for renewed stress; 2Y and FedWatch for policy repricing. |
| Energy Geopolitics | Iran–Oman negotiations / Strait of Hormuz | Oil is the fastest variable capable of turning disinflationary relief into a new price shock. | Brent rapidly recovering its weekly loss and effective new restrictions on transit. |
The market has priced in the slowdown. It now needs to prove that it is not a recession.
Week 32 Review: a favourable mix, but contingent on inflation
Week 32 delivered a powerful combination: robust earnings, a sharp decline in oil, a Treasury rally, and a Fed perceived as less inclined to tighten. This is the ideal mix for multiple expansion, and the Nasdaq expressed it without hesitation. However, the reason yields fell is a labour market that came in far weaker than expected — not a linear improvement in the macro backdrop.
The dividing line for Week 33 is straightforward. Moderate inflation combined with still-resilient demand would confirm an orderly slowdown and keep risk-on in place. Persistent inflation coupled with further labour market deterioration would, conversely, turn the relief in rates into a stagflation problem. Next week is not the time to chase the narrative: it is the time to verify which of the two causal chains is taking hold.
Sources and references
- U.S. Bureau of Labor Statistics — Employment Situation, July 2026: payrolls, unemployment, participation, wages and May/June revisions.
- U.S. Department of the Treasury — Daily Treasury Par Yield Curve Rates 2026: 2Y, 5Y, 10Y and 30Y levels; WoW and year-to-date comparison.
- Institute for Supply Management — July 2026 Manufacturing PMI: manufacturing PMI, new orders, production, employment and prices.
- Institute for Supply Management — July 2026 Services PMI: services PMI, business activity, new orders, employment and prices.
- Reuters — S&P closes at record high as soft jobs report eases rate-hike concerns: US performance, Fed pricing, earnings breadth, advance/decline and key corporate reactions.
- Reuters — US stocks, bonds rally after soft jobs report; yen bounces back: MSCI All-World, STOXX 600, yen, gold and cross-asset reaction.
- Reuters — Brent climbs on uncertainty over end to Iran war: Brent/WTI closes, weekly changes and Strait of Hormuz risk.
- Reuters — Gold hits seven-week high as weak US jobs data dents rate hike bets: spot price and weekly performance of gold.
- Reuters — STOXX 600 ends week at all-time high: European record, sector leadership and expected earnings growth.
- Reuters — AI demand keeps China's export engine humming: China exports, semiconductors and high-tech.
- Reuters — Korean retail investors turn back to Wall Street: KOSPI drawdown and Samsung/SK Hynix concentration.
- Reuters — Palantir lifts annual revenue forecast: revenues, guidance and government/commercial growth.
- Reuters — Caterpillar lifts 2026 sales growth forecast as AI buildout powers on: backlog, revenues and data-centre demand.
- Reuters — Dollar drops as weak US jobs data pushes out Fed hike expectations: DXY, USD/JPY and Fed pricing.
- U.S. Bureau of Labor Statistics — Productivity and Costs, Q2 2026 preliminary: productivity and unit labour costs.
- U.S. Bureau of Labor Statistics — 2026 release calendar: Week 33 CPI and PPI release schedule.
- U.S. Census Bureau — Monthly Retail Trade release schedule: publication date of July Retail Sales.
Author: Fabrizio Ravetto.
Disclaimer. This content is intended solely for informational and market analysis purposes. It does not constitute personalised financial advice, a public solicitation of savings or an individual investment recommendation. Any trading decision should be evaluated in light of one's own risk profile, time horizon and financial situation.
Transparency. Content produced with the support of artificial intelligence.