Global equity markets are displaying volatility on Friday, heading for a third consecutive week of gains, while US Treasury yields edge higher. This follows mild US inflation data that has tempered expectations for a Federal Reserve rate hike next month. However, renewed US economic pressure signals against Iran have pushed international oil prices higher once again.
As of the latest update, Dow Jones futures are down 0.14%, while S&P 500 futures are up 0.12%, after the index reached a new all-time closing high on Thursday. Nasdaq futures have gained 0.28%. The MSCI global equity index is on track for its third straight weekly increase, trading just below its historic highs. In Europe, the STOXX 600 index is slightly lower for the day, with weakness in the technology sector offset by gains in capital-intensive stocks like defense and automotive.
Where to start
Capital.com strategist Kyle Rodda noted that the market is ending the week in a relatively positive state, with limited event risk on both the economic and corporate fronts. "But it is Friday, and a recent pattern has been that geopolitical risks, or at least strong rhetoric, between the US and Iran tend to reheat near the weekend," he said. Rodda added that geopolitical uncertainty remains the only major macro headwind for the market, while corporate earnings and monetary policy outlooks are providing strong tailwinds.
Market attention remains firmly fixed on the broad artificial intelligence theme. Recent strong earnings reports from several companies have alleviated investor concerns about the massive capital expenditure required for AI. Following a sell-off last month, AI tech stocks have seen a notable rebound. Earlier fears that the hottest AI trades of the year had risen too quickly and become overvalued have been partially eased by the strong results from major tech giants, prompting investors to re-enter the AI sector. On Thursday, the Nasdaq 100 index rose over 1%, reaching its highest level since late June.
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According to sources, OpenAI's annualized revenue is on track to exceed $40 billion, roughly doubling its revenue run rate from the end of 2025, further bolstering the company's plans for a future Wall Street listing. In a key indicator for AI investment, South Korea's KOSPI index surged over 2% on Friday, bringing its weekly gain to 11%, ending a seven-week losing streak. Over the past five trading days, shares of Samsung Electronics and SK Hynix have each risen more than 15%.
Hitoshi Asaoka, chief strategist at Asset Management One, observed that massive capital from hyperscale cloud providers is flowing into the hardware sector, translating into extremely strong sales and profit growth for hardware companies. "Investors are now returning to the idea of 'let's look at how much money these companies are actually making,'" he said.
Brent crude oil rose 1%, approaching $88 per barrel, and is on track for a weekly gain of about 6%. European natural gas futures are expected to rise 10% this week, while US natural gas futures are likely to gain 3.5%. With the peace agreement stalled and the US threatening to increase economic pressure on Iran, including extending a naval blockade, oil and gas prices are still on track for notable weekly gains. Following US Treasury Secretary Scott Bessent's pledge to impose an unprecedented "economic isolation" on Iran, including a "double whammy" of continuing to block Iranian ports, the market has been generally cautious on the final trading day of the week.
Patrick Armstrong, chief investment officer at Plurimi Wealth, stated that he does not believe the Strait of Hormuz will be fully unblocked in the short term, adding that the market may be too complacent about the associated risks. The latest concerns over Middle East tensions have partially offset the positive impact of the AI trade revival. The rebound in the AI sector is helping the S&P 500 index move towards a third consecutive weekly gain.
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US Defense Secretary Pete Hegseth told reporters on Thursday that the US could maintain a blockade of Iranian ports indefinitely by rotating naval vessels. Jefferies economist Mohit Kumar expressed concern that there is no easy solution to the current crisis, noting that Iran will not give up control of the Strait of Hormuz, and the US will not accept Iran charging fees for ships passing through the waterway. Kumar believes that Iran has an advantage in time and a higher tolerance for economic pain.
John Sidawi, senior portfolio manager at Federated Hermes, noted a puzzling feature of the market in recent months: the widening divergence between geopolitical uncertainty and asset price volatility. "Currently, the market seems willing to tolerate a high degree of uncertainty without demanding a higher risk premium," he said. "But this balance is unlikely to persist forever." He added that either a clear escalation in the conflict or a clear path to resolution could eventually force investors to react, triggering volatility far greater than what is currently priced in.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, warned that the market's optimism this week seems disconnected from reality. "If the main reason for this rally is just the cooling of US inflation in July, then this optimism could fade quickly," she said. Earlier this week, mild US inflation and producer price data dampened investor expectations for further Fed rate hikes. US retail sales data due later on Friday will be the new focus, as the market seeks further clues about the next Fed policy meeting.
The US dollar fell as recent economic data undermined expectations for a Fed rate hike, while US Treasury yields rose alongside oil prices. The yield on the 10-year US Treasury note rose 2 basis points to 4.66%. Despite this week's cooling inflation data, the US Treasury's auction of 30-year bonds on Thursday still saw the highest yield in 25 years, highlighting that investors are demanding a higher risk premium to finance the US fiscal deficit. Analysts at Danske Bank noted that the auction reflects concerns about the growing federal debt burden and inflation remaining above the Fed's target. They pointed out that rising borrowing costs are further straining public finances, as US interest payments on debt now exceed defense spending.
Bloomberg cross-asset strategist Ven Ram observed that long-term Treasury yields have been rising this quarter, with most of the increase coming from a rising term premium, which is the extra compensation investors demand for holding longer-term bonds. This premium is rising as the US fiscal deficit expands and inflation has remained above the Fed's target for over five years.
In the foreign exchange market, the yen strengthened, with the dollar falling 0.2% against the yen to 159.18. This followed a Reuters report that the Bank of Japan could raise interest rates as early as September, according to three sources familiar with the thinking of BOJ policymakers. However, the dollar-yen pair remains close to the 160 level, with traders widely expecting Tokyo to intervene to buy yen if the exchange rate approaches this level again. Padhraic Garvey, global head of rates and debt strategy at ING, attributed the yen's weakness to an "extremely cautious BOJ and still too-low policy rates." He suggested that this tension could be alleviated by a rate hike, and the sooner, the better, even if it is seen as negative for the economy.
In commodities, gold fell 0.1% to $4,346. However, the metal is still on track for its largest monthly gain since February, supported by continued inflows from central banks and investors, and fading expectations of aggressive Fed rate hikes. Analysts at Sucden Financial noted that the overall uptrend remains intact, but both markets are failing to hold recent highs, suggesting some profit-taking after the rapid rally.
Prominent short-seller Steve Eisman views Anthropic and OpenAI as the "Achilles' heel" of the AI trade. While the market eagerly anticipates their IPOs, Eisman believes these two giants are the most vulnerable link in the entire AI chain. He pointed out that about 70% of big tech AI revenue comes from these two companies, and trouble could arise if cheap Chinese models trigger a price war. Despite market hopes for an Anthropic IPO (with a potential valuation of $2 trillion), Eisman says he will wait for them to disclose real data before making a judgment, currently only relying on "hearsay."
Bank of America's Hartnett suggests that the 2026 midterm elections are a key watershed for the AI bull market. If the Republicans hold the Senate and Texas Governor Abbott is re-elected, AI capital expenditure could continue, potentially driving stocks, especially in the AI sector, to "rally wildly" until 2027. Conversely, the market could see a significant drop of over 10%. Currently, earnings and AI investment support the bulls, but positions are extremely crowded, and rising bond yields pose a major risk.
In individual stocks, social media platform Reddit surged 12% after S&P Dow Jones Indices announced it will be added to the S&P 500 index on August 18, replacing AvalonBay Communities. Applied Materials fell over 5% in pre-market trading after its second-quarter results failed to meet investor expectations. The company reported adjusted earnings per share of $3.50 on revenue of $91.2 billion, with its core semiconductor systems business generating $70.4 billion in revenue, slightly above the FactSet consensus of $69.6 billion. Online furniture retailer Wayfair rose 4% after Bernstein upgraded the stock from "neutral" to "outperform," noting that Wayfair is still achieving mid-to-high single-digit revenue growth in the US despite a stagnant overall furniture industry. Workday shares gained about 2% following a Reuters report that private equity firm Silver Lake is in talks to acquire the company, after the stock surged nearly 18% on Thursday, its best single-day performance in a decade. Fox Corporation rose 2% after receiving upgrades from both JPMorgan and Wells Fargo, with analysts citing the company's momentum and its proposed $22 billion acquisition of Roku. Storage company Sandisk climbed 5% after JPMorgan analysts upgraded the stock from "neutral" to "overweight," stating that the company's new business model, reliant on long-term agreements, structurally lifts profit margins, and its shift to long-term, high-margin, take-or-pay revenue significantly reduces cyclicality.
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