Geopolitical Tensions Continue to Impact the Markets

Soft Payrolls Cool Rate Fears as Indexes Hit Record Highs

Equity markets capped the week ending August 7 on a strong bullish note, led by a sharp Friday rally after the Bureau of Labor Statistics released its July employment report. The S&P 500 and Dow Jones Industrial Average closed at fresh records, while the Nasdaq and Russell 2000 also posted strong weekly gains.

The primary catalyst was an unexpected contraction in nonfarm payrolls. U.S. employers cut 23,000 jobs in July, far below consensus expectations. Revisions to May and June reduced previously reported employment by a combined 103,000 jobs. The unemployment rate held at 4.1%, while average hourly earnings increased 3.2% year over year.

Markets interpreted the cooler labour data through a dovish lens: weaker employment reduced the perceived urgency for another near-term Federal Reserve rate increase. The 10-year Treasury yield eased to 4.65%, supporting credit-sensitive assets and long-duration growth shares.

Earlier macro releases still showed underlying economic resilience:

• ISM Manufacturing PMI: July rose to 55.6, the strongest reading in more than four years.
• ISM Services PMI: July registered 54.1, confirming continued expansion, although services employment moved back into contraction.
• Labour-market nuance: payroll growth weakened, but the unemployment rate remained stable and wage growth moderated rather than collapsed.

Technical Overview

Institutional flows favoured growth and cyclical exposure this week. Technology and materials led decisively, while utilities and energy lagged as investors rotated out of defensive and commodity-linked assets.

Global equities advanced alongside U.S. benchmarks, supported by corporate earnings, easing energy pressure and a more constructive rates backdrop.

WTI crude declined 7.7% for the week as markets weighed progress toward a possible arrangement to restore traffic through the Strait of Hormuz. Lower energy input costs supported net-importing economies, although the negotiations remained unresolved and geopolitical risk stayed elevated.

Market attention turns to inflation and consumer demand to test whether the disinflationary narrative remains intact after the soft payroll report.

Payroll weakness triggered relief at the long end, but the 30-year yield remains above 5%, preserving pressure on housing, refinancing and duration-sensitive assets.

U.S. Treasuries rallied across the curve late in the week after the July payroll decline. The 10-year yield ended at 4.65%, below its July 31 peak of 4.75%, while the 30-year yield closed at 5.19%.

Strategic Implications

1. Valuation relief for growth and technology: lower benchmark yields reduce the discount rate applied to long-duration cash flows, supporting mega-cap technology and AI software multiples.
2. Mortgage and real-estate headwinds persist: a 30-year Treasury yield above 5% keeps primary mortgage rates elevated and maintains pressure on housing affordability and commercial refinancing.
3. Fiscal supply remains the long-end anchor: heavy federal borrowing continues to require a meaningful term premium. Upcoming Treasury auctions will test investor absorption and the durability of the relief rally.