S&P 500, Dow, and Nasdaq Post Best Week Since April as AI Optimism and Weak Jobs Data Reshape the Rate Outlook

Global equity funds saw their 11th consecutive week of inflows, with $21.15 billion net poured into equity funds for the week ended August 5 .

AI Investment and Corporate Earnings

AI-linked earnings were the primary catalyst. Strong forecasts from Palantir (raised annual revenue guidance) and ON Semiconductor reassured investors about AI-driven demand, and semiconductors rallied sharply . Palantir's AI outlook and Caterpillar lifting its revenue growth outlook on data-center construction demand helped push the S&P 500 up 1.8% on Tuesday, August 4, to a then-record close of 7,737 .

Mega-cap tech earnings were a major factor in prior weeks. Microsoft and Amazon saw gains of over 15% after reporting, while Meta and Apple fell over 7% post-earnings, illustrating the high-stakes divergence in AI monetization . About 80% of S&P 500 companies have beaten earnings expectations, compared with 73% normally .

Some AI-related jitters persisted. Deutsche Bank highlighted a "sharp reassessment of the AI trade" with semiconductors and Korean equities suffering steep monthly losses despite strong year-to-date gains, while European stocks outperformed on sector rotation .

July U.S. Jobs Report

The U.S. economy unexpectedly lost 23,000 nonfarm payroll jobs in July, according to the Bureau of Labor Statistics . This was a severe miss versus economists' consensus expectations for a gain of roughly 83,000 to 97,500 jobs . The unemployment rate ticked down to 4.1% . Prior months' figures were revised sharply lower — June payrolls were revised to just 20,000 and May to 63,000 . The report "dampened expectations the Federal Reserve would raise interest rates at its September meeting" and was seen as reducing the odds of a rate hike .

Federal Reserve Rate Uncertainty

The soft jobs report significantly shifted the rate outlook. Earlier in the summer, markets were pricing in a potential rate increase, but the July data strengthened expectations that the Fed will "continue holding rates through the remainder of the year" . The weak labor market reading was the dominant factor Friday behind the rally, as it reduced the risk of tighter policy .

Middle East Tensions and Oil

Elevated Middle East tensions — centered on the Strait of Hormuz and U.S.–Iran negotiations — were a key cross-asset volatility driver, but U.S. oil prices eased during the week on hopes for progress in Iran talks . The easing of oil prices helped cool inflation concerns and supported risk appetite .

Gold Rally

Gold prices surged sharply. Spot gold jumped 3.99% on August 5 alone to $4,226.97/oz . Gold futures gained more than 5% over two trading sessions, swinging back above $4,300/oz . Gold hit a seven-week high of $4,265/oz on August 6, driven by a weaker U.S. dollar and falling Treasury yields . The rally came after a tough six months for the metal, with Deutsche Bank calling gold's run "explosive" and not yet over .

Summary

The week's market narrative was dominated by a powerful combination: strong AI-driven earnings lifted U.S. indexes to record highs, while a surprisingly weak July payrolls report alleviated fears of Fed tightening, sending stocks surging. Cooling oil prices on Middle East diplomatic hopes added to the risk-on tone, while gold rallied sharply on a weaker dollar and falling yields. Global equity funds attracted their 11th straight week of inflows as a result .