Amazon's 15.3% surge lifted the Nasdaq Composite by 1% on Friday. But small caps fell and chip stocks posted only a limited gain; the rally did not spread across the whole market.

The U.S. 10-year Treasury yield climbed to 4.75% and the 30-year yield to 5.27%, while U.S. crude stayed above $85. Despite strong earnings, long-term yields and oil remained elevated at the same time.

The focus for the coming week is therefore not only on technology companies. Friday's U.S. employment report will show whether the rise led by large companies can broaden.

Key takeaways

  • The S&P 500 rose 0.7% to close at 7,489.72, the Dow Jones gained 0.5% to 52,485.03, and the Nasdaq Composite advanced 1.0% to 25,373.85. The Russell 2000 fell 0.5% to 2,931.34. For the week, the Nasdaq gained 1.6%, while the Russell 2000 rose less than 0.1%; the weekly gain still lacked breadth.
  • QQQ, which tracks the Nasdaq 100, rose 0.7%, and the software-company ETF IGV gained 1.4%. The semiconductor ETF SMH added only 0.3%, while IWM, which tracks small U.S. companies, fell 0.5%. Microsoft and Nvidia rose about 3%; gains were concentrated in a few large technology companies.
  • Amazon closed at $271.58 and sustained its post-earnings rise during regular trading hours. Apple, by contrast, fell 7.4% to $308.91. The split on the same day showed that investors were pricing expectations for future growth and cash generation more heavily than a strong past quarter.
  • CNBC reported a final July University of Michigan consumer-sentiment reading of 55.2, while one-year inflation expectations remained at 4.2%. U.S. crude moving above $85 and rising about 21% in July helps explain why long-term yields did not fall despite strong earnings.
  • The coming week's main test is not price alone, but the link between employment and yields. U.S. job openings, private-sector employment, and Friday's nonfarm-payrolls report will show whether high financing costs continue to burden smaller companies.

What happened?

  • Amazon's post-earnings gain reaching 15.3% during regular trading showed that the initial reaction was not temporary. Investors rewarded not only artificial-intelligence spending, but also the way 37% growth at AWS, Amazon's cloud-computing unit, translated into revenue and operating income.
  • Apple's $109.4 billion in revenue and $2.02 in earnings per share were strong. Even so, the stock's 7.4% fall showed that the market priced the outlook more harshly than the past quarter; good results alone were not enough.
  • Microsoft and Nvidia rose, while the semiconductor ETF SMH gained only 0.3% and small caps fell. Buying remained limited to a few large technology companies; the companies most exposed to high interest rates did not participate.
  • Consumer confidence rose, but one-year inflation expectations did not fall. With oil also elevated, the bond market did not treat strong technology earnings as evidence of lower inflation.

Market levels

Global risk and oil

  • West Texas Intermediate (WTI), the U.S. crude benchmark, moved above $85 on Friday. Support is at $83-$85, initial resistance at $90-$92, and $95 is the main inflation-risk threshold. Staying below $90 would limit the pressure; holding above $95 would increase the risk of renewed energy-driven inflation.
  • The U.S. 10-year Treasury yield was 4.75% and the 30-year yield 5.27%. The first relief area for the 10-year is 4.65%, with 4.85% as the risk threshold; the 30-year has support at 5.20% and resistance at 5.30%. A 10-year yield above 4.85% would increase the pressure on technology stocks in particular.

US indices

  • The S&P 500 closed at 7,489.72. Initial support is at 7,450, initial resistance at 7,500, and 7,550 is the stronger continuation threshold. Holding above 7,450 would preserve Friday's rebound; a move below it would bring 7,400 back into view.
  • The QQQ ETF, which tracks the Nasdaq 100, closed at $687.99. Support is at $680, initial resistance at $690, and $700 is the stronger continuation threshold. Staying below $680 would weaken the rebound in technology stocks.

Themes and ETFs

  • The semiconductor ETF SMH and IWM, which tracks small U.S. companies, closed at $540.53 and $291.20, respectively. SMH has support at $535 and resistance at $550; IWM has support at $290 and initial resistance at $295. Small caps do not count as participating until IWM clears $295.
  • The software-company ETF IGV closed at $94.58. Support is at $93, initial resistance at $95, and $100 is the stronger continuation area. A move above $95 would show software companies participating more strongly in the technology advance.
  • Amazon closed at $271.58. Initial support is at $260, with lower support at $250; initial resistance is at $275-$280. Amazon's post-earnings advance remains intact while the stock holds above $260.
  • Apple closed at $308.91. Initial support is at $305, with $300 as the main psychological support; initial resistance is at $320, followed by the prior closing gap at $333. A break below $305 would deepen the pressure.

Crypto and precious metals

  • Bitcoin was near $63,085. The main short-term support is $62,000, with $64,400 as the first recovery level and $65,800 as stronger confirmation. The positive breakout is not complete until $64,400 is reclaimed.
  • Ethereum was near $1,869. Support is at $1,850, the first recovery level at $1,880, and resistance at $1,970. The structure holds above $1,850, but upward momentum remains limited until $1,970 is cleared.
  • XRP was near $1.068. Support is at $1.05, initial resistance at $1.09, and $1.13 is the stronger confirmation level. The previous positive threshold is not regained until $1.09 is reclaimed.
  • GLD, the gold ETF, closed at $371.54, while SLV, the silver ETF, closed at $52.36. GLD has support at $370 and initial resistance at $375.50; SLV has support at $52 and initial resistance at $53.30. The loss of prior support in both ETFs shows that pressure from long-term yields has reached precious metals.

Red flags

  • If U.S. crude moves above $90 while the 10-year yield also rises above 4.85%, oil and yield pressure will increase at the same time.
  • If QQQ, which tracks the Nasdaq 100, falls below $680, small-cap tracker IWM drops below $290, and the semiconductor ETF SMH loses $535, the rally will narrow to a few large technology stocks.
  • If employment weakens materially while the 10-year yield does not fall, growth fears will take precedence over relief from inflation.

Calendar

  • August 4, 5:00 p.m. TRT: The U.S. Job Openings and Labor Turnover Survey (JOLTS) for June will be released, showing whether demand for workers is cooling.
  • After the U.S. close on August 4, at midnight TRT on August 5: Chipmaker AMD will report second-quarter results and its outlook for the next period. The report will test whether Friday's limited advance in chip stocks can strengthen on company results.
  • August 5: ADP will publish its July private-sector employment report. It may provide direction before Friday's official data, but it is not sufficient on its own.
  • August 6, 3:30 p.m. TRT: The preliminary U.S. second-quarter productivity and unit-labor-cost data will be released. The effect of wage pressure on company margins and Treasury yields will be in focus.
  • August 7, 3:30 p.m. TRT: The U.S. July employment report will be released. Employment, the unemployment rate, and wage growth need to be read together.

My analysis

It is too early to read this as "technology is leading again." Amazon's rise showed one company with strong results being rewarded. Weakness in IWM, which tracks smaller U.S. companies, and in the semiconductor ETF SMH shows that the advance has not yet spread across the market. A more balanced rise requires IWM to clear $295 and the 10-year yield to fall below 4.65%.

Softer employment data alone would not be enough. The data need to lower yields and lift smaller companies to strengthen the expectation that inflation pressure can ease without a sharp economic slowdown. If yields stay high or IWM falls below $290, gains will remain concentrated in a few large technology companies.

Sources

Not investment advice; this is a research and monitoring note.