Week ended August 7, 2026: weak U.S. jobs report cheers investors

In spite of the noise in global markets, it’s August – does anyone care?  

Investors celebrated the weaker-than-expected U.S. jobs report on Friday, rounding out a week in which both global stocks and bonds rallied.  The U.S. jobs report pushed markets to price a higher probability that the Fed will hold rates steady in September and begin cutting later in the year, so stocks – especially more interest-rate sensitive stocks like small caps (e.g. the Russell 2000 index) – rallied hard into this revision in outlook given their reliance on floating-rate debt.  Tech shares also continued their ascent.  U.S. Treasury yields declined 8bps – 10bps across the curve, dragging corporate bonds along for the ride.  Gold also rallied, chalking up its best weekly gain since late last year, spurred by a weaker Dollar and lower interest rate expectations.  There was also heightened volatility in the FX market which I discuss in more detail below, with the Yen (against the US Dollar) stabilising back below ¥160 per US Dollar.  With the dog days of summer squarely upon us, there really wasn’t much not to like from an investor’s perspective, as you can see in the summary table below (more detail can be found in the update on the EMC website here).

The July jobs report

The July jobs report was a mixed bag, with non-farm payrolls decreasing by 23,000 while the unemployment rate fell to 4.1%.  CNBC described it as a bit of “smoke & mirrors”, which sounds about right given some of the drivers of the jobs market in the July report.  One statistic that caught my eye was the labour participation rate (meaning people actively employed or looking for a job), which fell to its lowest in 50 years outside of the COVID period.  Below is a graph of monthly payrolls since the beginning of 2023 from the FT.

The most important thing to consider is the reaction of investors, who revised their bets lower that the Fed might raise the Fed Funds rate at the September FOMC meeting. U.S. stocks and bonds cheered the news, with stocks rising to finish a strong week, and bond yields falling 8bps – 10bps across the curve.

Yen intervention

The U.S. and Japan have coordinated to stem ongoing weakness in the Japanese yen, with reports suggesting that the U.S. sold euros (rather than dollars) to support the yen in global FX markets. Ah, the plot thickens, as is often the case when dealing in global foreign exchange markets. There has been plenty written about the weak yen and its underlying causes in the mainstream press over the last couple of weeks. I’m not an FX guru, so I’ll offer just one general observation: my decades of watching currency interventions bias me toward expecting only a short term fix, one that can even make the eventual adjustment worse once the “feel good” effect fades. Japan will need to address the underlying causes of yen weakness—such as its high public debt, sluggish growth, and terms of trade pressures—if it wants a durable stabilisation, rather than relying on temporary market fixes. This sort of intervention makes me squirm because I don’t think it will work in any lasting sense. And I can’t shake the sense that the worsening U.S. fiscal trajectory and growing federal debt—much of it held by foreign investors, unlike Japan’s predominantly domestically held JGBs—will eventually come back to bite the U.S., via higher term premia, a weaker dollar, or some other channel.

Earnings that mattered last week

Below are a few companies that reported earnings this week which I think are important for investors, whether you own the stocks or not.  For disclosure, I only own LLY of the five stocks I mention below.  You can find good summaries of the S&P 500 earnings so far at “This Week in Earnings” (Lipper L/S/E/G) and “Earnings Insight” (FactSet).

PLTR (+39.8% WoW): PLTR is not a stock I have ever owned, mainly because I think it is super-expensive. I also find the CEO and co-founder Alex Karp even more annoying than Elon Musk in terms of pumping the company.  And I won’t comment on Peter Thiel’s involvement.  Now that that is off my chest, it is hard to argue with the company’s amazing results which it reported on Monday, with YoY revenues nearly doubling and bottom-line earnings nearly tripling.  The company beat analysts’ consensus expectations on the top- and bottom-lines, and also raised its forward guidance.  No wonder the stock rocketed up, clobbering plenty of short sellers along the way.  More broadly, I am encouraged by the growth in business at PLTR, as it illustrates that A.I. will not necessarily destroy software companies.  To the contrary, PLTR has made a sport out of incorporating an A.I.-driven strategy into its commercial growth.  Having said this, the forward P/E ratio of 84x and the price-to-sales of 60.5x make me squirm, but at least – unlike TSLA – PLTR is generating the growth that might justify these heady valuation multiples.

AMD (+1.5% WoW): From what I read, fabless (like NVDA) chip company AMD knocked the lights out in terms of beating on the top- and bottom-lines, and raising its guidance.  However, investors reacted to the recent run in the stock price, and also the fact that forward guidance was suggesting flattish gross margins.  It’s hard for AMD to compare itself to NVDA after all.  I do not know AMD well, but will say that its valuation multiples look more like INTC (meaning way too heady) than they look like substantially less-expensively priced chip stocks like NVDA, AVGO and MU (integrated, memory).

SPCX (+22.8% WoW): SPCX beat analysts’ consensus expectations on the top- and bottom-lines, its first earnings report as a public company.  However, the company is spending much more than though on A.I. data centres, and will continue this spending in the coming quarters according to CEO Elon Musk.  The company continues to lose money at the operating profit level.  And even though EBITDA was $3.5 billion (positive) for the quarter, SPCX spent $18.4 billion in capex.  There is no way that this company is worth anywhere near $1.75 trillion, its current market value, which I suppose is based on a series of promises, hyperbole and inuendo coming from the mouth of Mr Musk himself.  Again, it’s not my cup of tea, although the stock staged a nice recovery on Friday when it became apparent that the first lock-up expiry did not generate a selling avalanche. 

LLY (+5.8% WoW): LLY blew away consensus analysts’ expectations for the top- and bottom-lines, and raised its revenue guidance for the next quarter.  Not surprisingly, the driver was weight-loss and diabetes drugs, with sales of Zepbound and Mounjaro soaring.  This is as core of a holding as any investor could ask for.

CAT (+3.4% WoW): CAT beast top- and bottom-line consensus expectations, and gross margins increased significantly in the quarter.  All three business segments of Caterpillar performed above expectations, too, keeping in mind that the “Power & Energy” segment benefitted significantly from growing demand for data centres (power generator sales up 39% YoY!).  I still think of CAT as a manufacturer of heavy machinery, but today, that’s only around 35% to 40% of the company’s business, and even that business segment is booming. 

Geopolitical matters

With the U.S. largely sidelined, Iran and Oman are closing in on a deal to reopen the Strait of Hormuz to sea traffic.  How the economics will work is not clear yet.  I am still perplexed as to what the U.S. has accomplished – at least so far – in its conflict with Iran. 

What’s ahead

This is a big week for inflation data, with China, Japan and the U.S. (Weds) all reporting CPI for July.  The U.S. also sees some home sales data, retail sales data, and a consumer confidence update (Friday).    

This next series of central bank meetings occurs in September.  The next FOMC (Fed) meeting is scheduled for September 15-16.

MARKET DATA AND TABLES

Below are tables of key indices and asset prices that have been updated for the past week. 

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