4 Things That Will Drive the Market From Here
With Big Tech earnings behind us, the setup for August is clearer. Here’s my strategy and the one stock I’m watching.
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With reports from six of the Magnificent Seven stocks now behind us, the question for investors is what happens next. The events that dominated July are finished. The Fed met, the mega-caps reported, and forced selling in technology that made the middle of the month so ugly appears to have run its course.
Four things will drive the action from here, and they push in different directions.
1. AI Is Now a Company Story, Not a Theme
For two years, AI was a single trade. If a company had a credible connection to it, the stock went up. Chips, data centers, power suppliers, software, and anything that could put the letters in a press release participated. Nobody needed to distinguish between them because the tide lifted all of it.
The past two weeks broke that. The first break was just as blunt as what came before, with investors selling everything carrying an AI association regardless of the specifics. Alphabet (GOOGL) fell 7% on its capex number and Micron (MU) lost 30% after a blowout report. Good businesses and questionable ones went down together.
What happened last week is different in kind. The market started separating these companies based on their own numbers, and the results diverged sharply.
Microsoft (MSFT) guided its capital spending higher and gained 16% in a session, adding roughly $450 billion in market value, the largest one-day gain for any U.S. business. Azure growth accelerated to 43%, the fastest in four years.
Meta Platforms (META) grew revenue 28% and beat on the top line, and the stock is still down about 20% since the middle of July. Earnings missed and free cash flow fell 91% from a year ago. The business is performing and the spending is eating the results.
Alphabet fell 7% on its report and has since recovered all of that and more. Nothing in the report changed. What changed is that investors went back and looked at the profitability, including a cloud operating margin that nearly doubled from a year earlier to 35.6%. The evidence was in the release the whole time. It took the Microsoft report to give the market a framework for seeing it.
The four biggest spenders are guiding to between $720 billion and $745 billion of capital spending this year, up from roughly $410 billion in 2025. The market has stopped treating that number as the question. Microsoft raised its spending and rallied, Alphabet raised its spending and recovered, Meta raised its spending and remains broken. The size of the check is not what separates them. What separates them is whether the money is showing up as revenue and margin.
Apple (AAPL) proves the same point from the other direction. Apple stayed out of the spending race entirely and is down 7% since its report, hurt by supply constraints and rising memory prices created by everyone else’s buildout. Refusing to participate offered no protection.
The bears spent two years focused on whether AI is a bubble and that turned out to be the wrong question. The right question is who wins and who does not, and we are finally getting answers.
Amazon Is the One I Am Watching
Amazon (AMZN) delivered the best report of the group and it is the name I am tracking most closely for an entry.
The headline number needs adjusting before it means anything. Reported earnings came in at $5.75 per share against a $1.82 consensus, but net income of $62.6 billion includes $53.4 billion of non-operating income, primarily from its stake in Anthropic.
Strip that out and what remains is the strongest quarter in the group. Operating income of $27.461 billion blew through the company’s own guidance of $20 billion to $24 billion. Revenue came in at $200.6 billion, ahead of consensus. Amazon Web Services did $42.23 billion with growth excluding currency at 37%, well above the 31.3% analysts expected, and that is the fifth consecutive quarter of acceleration.
The third-quarter guide looked light at $197 billion to $202 billion against a consensus above $203 billion, which is why some of the early commentary was cautious. The details tell a different story. Amazon said the guided growth of 9% to 12% would be nearly 400 basis points higher without the Prime Day timing difference between the two years, with another 80 basis points of drag from currency. Operating income is guided to $22.5 billion to $26.5 billion against $17.4 billion in the same quarter last year.
Take out the calendar and the dollar and there is no slowdown in that guide. There is a large increase in profitability.
What makes this interesting from a trading standpoint is that Amazon has been a laggard all year. It was up around 4% for 2026 heading into the report while Apple was up 23%. This is not a stock that ran up for months and then delivered good news. It is a stock that went nowhere and then produced the cleanest evidence in the group that the spending is converting.
I am not chasing it after a 15% move. A big move like that is an alert rather than a buy signal, and buying at the highest price anyone has ever paid gives you no support underneath and no level that tells you when you are wrong. What I want to see is the consolidation that usually follows a gap like this. That is where the entry is, and that is what I will be stalking.
2. Interest Rates Are Becoming the Bigger Problem
The 30-year Treasury yield closed Friday at 5.25%, the highest since 2007. The 10-year topped 4.73%, the highest since January 2025.
That happened in a week when the Fed held rates steady, which is the part that matters. Three members of the FOMC dissented in favor of a hike and Kevin Warsh declined to signal anything about the path ahead. Long-term bond investors read that combination and demanded more compensation. Odds of a quarter-point hike by the September meeting sit above 60%, and the odds of at least a quarter point by December are around 85%.
Rates at these levels press on everything the market is trying to finance, which right now is an enormous data-center buildout funded increasingly with debt. This is the issue most likely to be underestimated in the weeks ahead, because it does not produce dramatic headlines the way an earnings miss does. It just grinds.
Iran is the wild card underneath all of it. President Trump said over the weekend that he is halting attacks because Iran has agreed to a deal, and Iran responded that there is no deal. That is the fog of war in its purest form, and there is no way to position around a contradiction like that.
Oil has given back much of the war premium since the spike toward $100 two weeks ago, but crude remains well above where it traded before the conflict began. As long as that premium sits there the headline inflation numbers stay elevated and the hawks keep their argument. A durable settlement would do more for this market than anything the Fed is likely to say. The trouble is that we have been told the fighting was ending several times already this year, and each time it resumed.
The July jobs report arrives Friday. June came in at 57,000 against expectations near 115,000, with April and May both revised lower. A weak number eases the rate pressure. A strong one gives the hawks more ammunition.
3. Seasonality Turns Against Us
August through October is historically the weakest stretch of the calendar, and it is arriving at the same time the indexes are showing some toppy action.
Seasonality is not a reason to do anything by itself. It is a reason to expect that rallies will have a harder time sustaining themselves and that pullbacks will be deeper than they were in the spring. It argues for keeping cash levels higher than usual and for being selective rather than aggressive.
4. Rotation Is the Most Severe in Years
The rotational action over the past several weeks has been as violent as anything I have seen. Money left the chips and went into pharmaceuticals and consumer names, then came back out again days later. Groups have led and broken down within a single week.
That is not a negative in itself. It is a sign that capital is staying in the market rather than heading for the exits. But it makes the indexes poor guides to what is actually happening. There were sessions in July where the Dow rallied several hundred points while the average growth stock was getting hit, and sessions where the reverse was true.
If you are managing individual stocks, the index level tells you less right now than it has in years. Breadth, new highs and new lows, and the action in your own positions are far better indicators.
Game Plan
Small-cap earnings season starts this week and that is where the next batch of opportunities comes from. The same dispersion we just watched in the mega-caps will show up in the smaller names, with the difference that the moves are far bigger and the mispricings last longer.
My focus stays on stocks that showed relative strength while the market was under pressure and on names that have been pushed around by the volatility without any change in their underlying business. A stock that held up during the past two weeks earned its place on the list.
Know what you own and understand what is expected of it going into its report. The best trades are found in the movement after the news rather than in guessing the outcome in advance.
Position: None
