U.S. stocks climb as AI-driven surge sidesteps small caps

NEW YORK, July 31, 2026, 16:03 EDT

The S&P 500 advanced 0.70% and the Nasdaq Composite increased 1.00%.
Amazon.com NASDAQ:AMZN surged 15.32% while Apple NASDAQ:AAPL declined 7.35%.
Next week, payroll and business survey data are set to challenge the current outlook for interest rates.

U.S. equities finished up on Friday, with technology and consumer sectors posting the strongest gains. The S&P 500 advanced 0.70%, and the Nasdaq rose 1.00%. The cash session ended at 4 p.m. EDT.

The advance was less widespread than headline gains indicated. The Russell 2000 declined 0.36%, with more stocks losing ground than rising late in the session. This disparity signals a concentrated move rather than widespread risk-taking.

Index	Friday close	Day	Week	Year to date
S&P 500	7,489.8	+0.70%	+1.05%	+9.41%
Nasdaq Composite	25,373.9	+1.00%	+1.59%	+9.17%
Dow Jones Industrial Average	52,485.7	+0.53%	+1.04%	+9.20%
Russell 2000	2,935.5	−0.36%	+0.19%	+18.27%

Each of the four benchmarks ended the week in positive territory. However, on Friday, the S&P-Russell difference widened to 1.06 percentage points. Small caps continued to be the front-runner for the year.

Artificial-intelligence spending faced increased scrutiny as a result of the price movement. Investors favored clear gains in cloud revenue and reacted negatively to slower expected near-term growth.

Company	Friday move	Data investors priced
Amazon.com NASDAQ:AMZN	+15.32%	AWS revenue jumped 37% to $42.2 billion. Projected 2026 capital investment was raised to approximately $220 billion.
Microsoft NASDAQ:MSFT	+3.02%	Microsoft Cloud posted a 27% rise in revenue to $59.3 billion.
Apple NASDAQ:AAPL	−7.35%	The company projected September-quarter revenue growth will be 9% to 11%, missing analyst estimates.

Amazon reported trailing free cash flow of negative $7.6 billion, compared with a positive $18.2 billion from a year ago. Shares, however, climbed 15.32%.

AWS revenue rose by 37%, and its order backlog hit $496 billion. CEO Andy Jassy noted that demand remained higher than supply. “Andy Jassy just put those fears to bed,” said Jake Dollarhide of Longbow Asset Management. Reuters

Microsoft echoed a similar sentiment. Expansion in cloud services backed substantial infrastructure investment. Apple, meanwhile, presented a less robust forecast, reflecting the impact of short-term supply constraints.

Market signal	Friday reading	Comparison
S&P 500 compared to Russell 2000	+0.70% versus −0.36%	Large-cap advantage by 1.06 percentage points
Late-day market breadth	1.1 decliners for every advancer	Negative breadth though S&P climbed
S&P 500 future valuation	Roughly 20 times earnings	10-year average close to 19 times
10-year Treasury note yield	4.739%	The highest reached since January 2025

The valuation buffer stayed narrow. The S&P was trading at close to 20 times expected earnings, surpassing its 10-year average. As a result, yields held outsized significance.

Treasury yields rose, with investors assessing fresh concerns about inflation. The yield on the 10-year note hit 4.739%, marking its peak since January 2025. The 30-year yield advanced to 5.2713%.

The Federal Reserve left rates steady at 3.50% to 3.75% this week. Three policymakers dissented, favoring a rate hike. Futures put the odds of a September increase at around two-thirds.

Art Hogan of B. Riley Wealth stated that markets continued to be “held hostage” by movements in oil prices and the 10-year yield. Shifts in either can rapidly impact equity valuations. Reuters

The upcoming test is set for Monday, featuring July’s manufacturing data. Labor-market updates will culminate with Friday’s employment report.

Date	U.S. release	Time	Main investor test
Monday, Aug. 3	ISM manufacturing survey	10:00 EDT	Production momentum and input cost trends
Tuesday, Aug. 4	June job openings	10:00 EDT	Indications on labor shortages and wage patterns
Wednesday, Aug. 5	ISM services survey	10:00 EDT	Pressure on services pricing and activity
Thursday, Aug. 6	Second-quarter productivity, preliminary	08:30 EDT	Signaling of unit labor cost growth
Friday, Aug. 7	July employment report	08:30 EDT	Preliminary Reuters poll: 91,000 jobs; 4.3% unemployment

Over a quarter of S&P 500 firms are scheduled to report earnings next week, maintaining a strong connection between corporate outlooks and bond market moves.

Risks: Higher yields may result if payroll numbers beat expectations, oil climbs again, or AI outlooks disappoint. This could put Friday’s modest gains at risk. Conversely, weaker data might renew worries about economic growth.

The immediate challenge is straightforward. Cloud revenue needs to continue outpacing financing expenses.

TS2 TECH • EXTENDED COVERAGE

Further analysis

Editorial insight

What were the closing results for the main U.S. indexes in the most recent session?

U.S. equities closed higher on Friday, July 31, according to preliminary data. The S&P 500 climbed 0.70% to close at 7,489.52. The Nasdaq was up 1.01% at 25,376.69, while the Dow increased 0.54% to end at 52,488.83. The S&P 500 was largely unchanged for July, and the Nasdaq posted a roughly 3% decline, though both benchmarks remain about 9% higher for 2026. Reuters

What drove the market’s recovery on Friday?

Amazon led gains during the session, climbing roughly 15% after reporting its quarterly profit had more than tripled. The company also posted its fastest revenue growth in more than four years. Microsoft built on Thursday’s 15% rally, its biggest since 2008. Shares of Apple slid nearly 9% as the company cautioned that growth might be constrained by component shortages. Clear evidence that significant investments in AI are generating revenue prompted positive investor reaction. Reuters

Is market strength widespread or mainly focused in certain areas?

Market breadth stayed limited late in the session, even as headline indexes climbed. The equal-weight S&P 500 hovered near unchanged, with more stocks falling than rising. Large-cap technology and consumer names contributed most to index gains. The equal-weight index remained on track for a fourth consecutive monthly gain. While breadth is showing improvement over longer time frames, it continues to fluctuate daily. Reuters

Do corporate earnings have sufficient strength to justify present stock valuations?

Earnings growth remains robust, but expectations are tight, leaving little tolerance for disappointment. Analysts anticipate S&P 500 earnings for the second quarter to climb 48% versus the prior year. Much of this forecasted rise comes from companies tied to AI. The index is valued at nearly 20 times projected earnings, compared to a 10-year average close to 19 times. While the valuation premium is slight, the concentration of earnings adds to the risk of forecasts. Reuters

What action did the Federal Reserve take, and is an increase in September anticipated?

The Federal Reserve has kept its policy rate steady at 3.50% to 3.75%. The outcome was a 9–3 majority in favor, with three members seeking a quarter-point hike immediately. By Friday's close, futures markets indicated a 65% chance of an increase in September, down from 82% a week before. Market pricing is subject to rapid change and should not be seen as official Fed guidance. Federal Reserve

What is driving Treasury yields to pose a greater risk to the stock market?

The 10-year Treasury yield climbed to 4.739%, marking its highest point since January 2025. The 30-year yield advanced to 5.2713%, reaching a level not seen since mid-2007. Rising yields boost borrowing costs and decrease the present value of projected earnings, a key issue for high-priced growth stocks. Bond selling quickened on Friday amid oil-driven inflation worries and firm Fed remarks. If yields remain elevated, they could curb further valuation increases. Reuters

Is the U.S. economy decelerating toward a recession?

Although growth moderated, underlying private domestic demand stayed solid. Real GDP grew at an annualized 1.5% pace in the second quarter, following a 2.1% gain the previous period. Private domestic final sales picked up speed, climbing to 3.9% from 1.7%. June payrolls rose by just 57,000, while the unemployment rate was steady at 4.2%. Overall, the data point to a slowdown, rather than a clear recession. Bureau of Economic Analysis

Is the progress on inflation sufficient to bolster equities?

Inflation data for June showed notable improvement. Headline PCE prices declined by 0.1%, and core prices posted a 0.1% gain. Still, headline inflation over twelve months remained at 3.7%. Core inflation was 3.3%. Both rates continue to exceed the Fed’s 2% target. Despite the softer monthly figures, a September rate hike remains possible. Bureau of Economic Analysis

What key events should investors monitor in the week ahead?

The main upcoming event is the July employment report, due August 7. June trade figures are expected on August 4. Robust hiring may drive Treasury yields higher and boost expectations of a September rate increase. Softer hiring could increase worries about the economic outlook and company earnings. Ongoing volatility remains the most likely short-term scenario. Earnings underpin equities, while interest rates and inflation continue to cap valuation growth. Bureau of Labor Statistics

U.S. stocks climb as AI-driven surge sidesteps small caps

Further analysis

Related articles

TechStock² Updates

Pfizer (NYSE:PFE) Stock Gains Before Q2 as Eliquis Read-Through Strengthens

Warner Bros. Discovery (NASDAQ:WBD) rises 3.2% as cash-offer gap persists – Investing.com

Dow Jones climbs 278 points; two stocks accounted for an estimated 124% of the gain