Market Matters – Topsy-Turvy Markets Despite Earnings

• Modest weekly gains of approximately 1.0% for the S&P 500 and 1.6% for the Nasdaq concealed exceptional company-level dispersion, as investors rewarded demonstrable AI revenue growth but increasingly penalised weak cash conversion and excessive capital intensity.
• July’s returns showed pronounced geographic and sector divergence: China and the FTSE 100 advanced strongly, while global technology and Asian markets weakened. China’s equity performance nevertheless contrasted with a manufacturing PMI of 49.2, indicating that the rally was not underpinned by a broad domestic reacceleration.
• The US economy remains resilient beneath a subdued 1.5% annualised GDP headline, with private domestic demand expanding by 3.9%. Persistent core inflation, continued household spending and a low saving rate leave limited scope for near-term monetary easing.
• The Federal Reserve’s decision to hold rates at 3.5%–3.75% was accompanied by three hawkish dissents and a steeper yield curve. With the 10-year Treasury at 4.75% and the 30-year at 5.27%, rising discount rates represent an increasingly important constraint on highly valued growth assets.
• Reported currency intervention in the yen, a more hawkish Bank of Japan outlook and continuing disruption to Middle Eastern energy flows add further policy and inflation uncertainty. AMD’s results and the forthcoming US employment report will provide the next tests of AI breadth and monetary-policy expectations.