Pre-market trading on Friday, August 7, sees all three major US stock index futures pointing higher. As of writing, Dow futures are up 0.15%, S&P 500 futures are up 0.27%, and Nasdaq futures are up 0.59%.
European markets are also showing gains, with the German DAX index rising 0.77%, the UK FTSE 100 up 0.71%, the French CAC 40 adding 0.44%, and the Euro Stoxx 50 gaining 0.67%.
In commodities, WTI crude oil is down 0.78% to $76.69 per barrel, while Brent crude has fallen 0.82% to $81.81 per barrel.
The market is bracing for the pivotal US July nonfarm payrolls report. Current expectations are for an addition of just 83,000 jobs, an increase from the 57,000 added in June, with the unemployment rate holding steady at 4.2%. Average hourly earnings are forecast to rise 0.3% month-over-month and 3.5% year-over-year, a pace theoretically aligned with the Federal Reserve's 2% inflation target. The US labor market is currently characterized by a "low hiring, low firing" pattern, where companies are not aggressively recruiting but also not conducting mass layoffs. For US stocks, particularly tech shares that have recently experienced sharp volatility, a "Goldilocks" number—neither too hot nor too cold—would be the most comfortable outcome. This would suggest the economy is not stalling without reigniting wage-driven inflation, allowing the market to continue trading on a "soft landing" narrative without the need to significantly raise interest rate expectations. However, a significantly stronger-than-expected jobs report could quickly lift the probability of a September rate hike, putting pressure on high-valuation tech stocks. Conversely, a sudden slowdown in the data could shift the market's focus from "cooling rate hikes" to "economic deceleration."
Federal Reserve Bank of St. Louis President Alberto Musalem has cautioned against entrenched high inflation, stating that monetary policy must remain meaningfully restrictive. With inflation still above the Fed's 2% target, Musalem argued that policymakers cannot afford to tolerate higher inflation while waiting for the potential benefits of strong productivity growth. Although Musalem is not a voting member of the FOMC this year, he indicated he expressed a preference for a 25-basis-point rate hike at the last policy meeting. He emphasized that the key is for monetary policy to effectively constrain actual inflation, rather than accepting slightly higher inflation today for the sake of future productivity gains. He noted that the central bank's most important contribution to long-term economic growth is providing a stable price environment, allowing businesses to plan for investments and innovation that drive growth.
A closer look at the "record-breaking" earnings season reveals structural concerns. Goldman Sachs' internal report indicates that S&P 500 component companies' Q2 EPS grew 45% year-over-year. However, excluding fair value gains from large tech companies' equity investment holdings, that growth rate nearly halves to 26%. This means roughly half of the record profit growth stems from book-value revaluations of tech giants' venture portfolios, not from core operational profit expansion. Furthermore, AI infrastructure-related stocks contributed about one-third of the overall S&P 500 EPS growth, highlighting the high concentration of earnings growth. For index investors, this suggests the earnings foundation supporting current valuations is far more fragile than the headline numbers suggest.
Bank of America's derivatives team warns that market volatility has become the norm, with AI bubble risk indicators nearing extreme levels seen during the dot-com era. The team's latest report notes that as the AI bubble accumulates, market volatility and uncertainty are rising on both macro and micro levels, with several key indicators approaching or matching historical extremes from the 2000 internet bubble. A notable trend is the divergence in stock returns. In the current market structure of low correlation and frequent sector rotation, the divergence among individual stocks is widening, even within the tech sector. BofA data shows the dispersion of S&P 500 components is nearing the historical highs of the internet bubble era. The bank has previously warned that as the AI bubble grows, the divergence among US stocks could break records set during the dot-com era, given that today's tech giants have larger market caps, more volatile share prices, and greater influence over the broader market.
Spot gold has surged past the $4,300 mark, currently trading up nearly 2% at $4,318 per ounce. The rapid price increase is mainly attributed to reduced geopolitical risks and a weakening of expectations for further Fed rate hikes, which has pressured the US dollar index and boosted gold. Amid this strong rebound after months of sluggishness, UBS sees further potential, forecasting gold could return to $5,000 per ounce in the first half of 2027. The bank believes the structural drivers supporting gold prices remain solid over the medium to long term. UBS advises distinguishing between short-term trading risks and long-term investment logic, viewing phases where gold prices fall to $4,000 or below as opportunities to build strategic positions.
According to sources, Iran and Oman have reached a preliminary understanding on the framework for an agreement to reopen the Strait of Hormuz. The plan would see the strait open for 60 days, with vessels entering the Persian Gulf via the lane near Iran and exiting via the lane near Oman. No transit fees or service charges would be imposed, and regional parties could participate in technical work like mine clearance. The agreement still requires approval from Iran's Supreme National Security Council and could be announced within days. Following approval, the US and Iran are expected to resume implementation of previously agreed memoranda of understanding.
In pre-market trading, optical communication stocks are broadly higher. Applied Optoelectronics (AAOI.US) is up over 13% after reporting Q2 revenue that surged 86% to $192 million, with data center revenue exceeding $100 million for the first time and 800G product revenue doubling quarter-over-quarter. More importantly, its 1.6T product is nearing customer certification and shipment. Management's medium-term path suggests monthly data center transceiver revenue could reach $471 million.
SK Hynix (SKHY.US) has announced a dividend of 375 won per share and is actively evaluating measures to further enhance shareholder value, with details to be finalized and announced in the third quarter. Despite holding massive cash, analysts estimate the company's free cash flow this year could reach about 100 trillion won. However, its plan to allocate 50% of free cash flow to shareholder returns lags behind competitor Micron's 100% target, causing dissatisfaction among some investors. Analysts suggest this contrast between high earnings growth and conservative shareholder returns may indicate management's skepticism about the long-term sustainability of the current AI memory boom.
Cloudflare (NET.US) has raised its full-year profit forecast, exceeding Wall Street estimates, as AI-driven demand for network services accelerates. Q2 revenue grew 35.9% to $696.1 million, surpassing expectations by $29.75 million, with adjusted EPS of $0.29 beating estimates by $0.02. The company now expects full-year adjusted EPS of $1.25 to $1.26, up from the previous forecast of $1.19 to $1.20. Cloudflare shares are up over 16% in pre-market trading.
Roku (ROKU.US) reported a strong Q2 with revenue up 22% to $1.35 billion, beating the $1.3 billion consensus. Net profit surged over 15-fold to a record $164.2 million, with diluted EPS of $1.08, double market expectations. This marks the fifth consecutive quarter of net profit. Advertising revenue grew 25% to $673 million, while subscription revenue rose 26% to $548 million. This is the first earnings report since Fox Corporation announced its $22 billion acquisition of Roku in mid-June, a deal expected to close in the first half of 2027.
Driven by the global travel boom and the World Cup, Airbnb (ABNB.US) delivered what it calls its "strongest" results in recent years. Q2 revenue reached $3.61 billion, above the $3.1 billion a year ago and the $3.57 billion consensus. EPS rose to $1.37 from $1.03. Based on robust global travel demand, Airbnb raised its full-year 2026 revenue growth guidance to "at least a mid-teens percentage," up from the "low-to-mid-teens" forecast given in May and significantly above analysts' average estimate of 14%. The company highlighted AI as a key focus for the next phase of experience enhancement. Shares are up over 7% in pre-market trading.
Atlassian (TEAM.US) dispelled "AI replacement" concerns with a strong Q4 report. For the quarter ended June 30, adjusted EPS was $1.87, well above the consensus estimate of $1.50, while total revenue surged 28% to $1.77 billion, significantly exceeding the $1.66 billion forecast. The key driver was cloud migration, with cloud revenue reaching $1.21 billion, growing 31%. Subscription annual recurring revenue (ARR) grew 23% to $6.61 billion, and remaining performance obligations (RPO) surged 44% to $4.82 billion. Atlassian shares are up nearly 27% in pre-market trading.
Key economic data and events on the horizon include the US July nonfarm payrolls report at 8:30 PM Beijing time, a speech by 2027 FOMC voter and Richmond Fed President Thomas Barkin at 10:00 PM, and the US July New York Fed 1-year inflation expectations at 11:00 PM.
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