Weekly Market Update: Softer Data Cools Rate-Hike Bets

Markets traded higher for a third straight week as participation broadened.

The S&P 500 gained 1.2%, the Nasdaq 100 rose 2.4%, and the Russell 2000 small-cap index rose 1.8%. Both the S&P 500 and Russell 2000 reached new all-time highs.

Growth and high-beta stocks led the market higher, though strength wasn’t limited to the largest companies.

The equal-weight S&P 500 gained 1.9%, which suggests participation stayed relatively broad.

Technology rose 2.9%, and Energy was the week’s strongest sector as oil prices climbed nearly 5%. International stocks generally kept pace with U.S. equities, while the U.S. dollar was little changed.

Bonds traded higher as investors reduced expectations for another Federal Reserve rate hike, with shorter-maturity bonds outperforming longer-maturity bonds. Gold continued to drift higher, while the VIX fell below 15 and remains near its lowest level of the year.

Key Takeaways

The Labor Market Softened in July

The labor market showed more signs of cooling in July. Employers cut 23,000 jobs, and previously reported gains for May and June were revised lower by a combined 103,000, suggesting hiring had already been weaker than first reported.

Even so, the broader picture hasn’t fallen apart. The unemployment rate held relatively low at 4.1%, and private-sector employment rose by 30,000.

The report points to a labor market losing momentum, but not yet the kind of deterioration typically tied to a recession.

Why it matters: A softer labor market weakens one of the arguments for keeping interest rates higher. If employment continues to cool without a meaningful rise in unemployment, the Fed may have less reason to tighten policy further.

Inflation Stayed Contained

The latest inflation reports were relatively encouraging. Consumer prices rose just 0.1% in July, and producer prices were unchanged. Both came in below expectations and helped ease concerns that rising oil prices were pushing inflation broadly higher again.

Energy remains a pressure point. The energy component of CPI is still 14.5% higher than a year ago, but that increase hasn’t translated into a similar acceleration across broader inflation measures.

Higher energy prices can squeeze households and businesses without necessarily setting off another broad inflation cycle.

Why it matters: Inflation remains above the Fed’s target, but July’s reports suggest the recent energy shock hasn’t spread meaningfully into the rest of the economy. That reduces some of the immediate pressure on the Fed to respond with higher rates.

September Rate-Hike Odds Fell

The outlook for Fed policy shifted meaningfully over the week. Heading into the employment report, markets were assigning better than a 50% probability to a September hike, with persistent inflation concerns and three dissents at the Fed’s July meeting keeping another increase firmly on the table.

Then the data changed the conversation. Expectations for a September hike fell after the weaker payroll report, declined again following Wednesday’s CPI release, and moved lower still after Thursday’s flat producer-price report. In other words, investors are looking at a different backdrop than they were several weeks ago: a softening labor market alongside relatively contained inflation.

Why it matters: With the Fed offering less forward guidance, each incoming report carries more weight. This week’s data shifted the balance away from another near-term increase, though that outlook can change quickly if inflation or employment data surprise again.

AI Demand Stayed Strong

The investment boom around artificial intelligence continues to show up in the companies building its infrastructure. CoreWeave, which buys advanced chips, installs them in data centers, and leases that computing capacity to customers, reported quarterly revenue of $2.58 billion and a backlog that climbed to $104 billion.

Other AI-infrastructure companies also reported strong growth during the week, suggesting demand isn’t isolated to a single name.

The story increasingly extends beyond software firms and chipmakers to the data centers, power, networking equipment, and computing capacity needed to train and run more sophisticated AI models.

Why it matters: Questions remain about how much companies will ultimately spend on AI and what returns those investments will generate. Even so, rapid growth in demand for computing capacity suggests the underlying buildout remains strong.

Small-Business Confidence Climbed

Small-business owners grew more optimistic in July. The NFIB Small Business Optimism Index rose to 99.8, its highest reading since August 2025 and above its long-term average.

That’s notable given the past several years of higher inflation, elevated borrowing costs, and persistent difficulty finding qualified workers.

Those pressures haven’t disappeared, but July’s survey showed improvement across several categories, including a meaningful increase in hiring plans.

Since small businesses account for nearly half of private-sector employment, improving sentiment offers a useful read on conditions beneath the surface of the broader economy.

Why it matters: Rising confidence suggests some of the pressures weighing on small businesses may be starting to ease. If that continues, it could support hiring, investment, and activity even as growth elsewhere moderates.