Pendulum Swings Back Up on Magnificent 7 Strength

Published as of: August 8, 2025, 9:30 a.m. ET

(Friday market open) Despite a roller coaster ride the last few days, Friday dawns with the broader market on pace for weekly gains and only about 1% below July's peak. Trade policy remains in the spotlight as Tuesday's deadline for a deal with China approaches, and many companies exposed to fresh tariffs saw their shares decline yesterday. Major indexes rose this morning as six of the Magnificent Seven gained before the open.

On a day lacking fresh data, one new headwind could be poor demand for Treasuries across several recent auctions. With yields down from recent highs on signs of economic weakness, bond buyers didn't seem eager to scoop up the government's new debt offerings. Soft auction demand often forces yields up, which makes borrowing more costly. Another concern is Wall Street's recent inability to hold gains. Most recent sessions began higher only to run into selling, with yesterday a prime example. Major indexes closed mostly lower Thursday as an early rally faded, though the Nasdaq marched to its own beat and posted a new closing record.

"Day-to-day volatility has been picking up, VIX has been seeing signs of life, and the VIX term structure is steep," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research, referring to the CBOE Volatility Index (VIX). October VIX futures reached nearly 21 versus under 17 yesterday for spot VIX, implying participants expect more volatility in coming months. That often correlates with pressure on Wall Street. "The odds of a 3% to 7% pullback in stocks is higher than average at this juncture," Peterson said. 

1. Sunlight breaks through in bond market: Though Treasuries haven't delivered major gains for bond holders the last few months as yields stayed in a tight range, that could be changing. Yields on the 10-year note recently fell to one-month lows near 4.2%, and rising expectations of a Federal Reserve rate cut next month and more to come puts the bond market in a new light (yields move the opposite direction of their underlying notes). Looking even farther ahead, futures trading expects the federal funds rate to drop to 3% by the end of next year from the current rate near 4.3%. "For investors, falling interest rates amid a slowing economy suggest that total returns should continue to be positive in the fixed income markets," said Kathy Jones, chief fixed income strategist at Schwab, in a recent analysis. "With this backdrop, the risk that yields will move back up to levels seen earlier in the year has diminished. In our view, a turning point has been reached that should benefit investments in bonds."
    
2. Rate cuts could signal market headwind: Though lower yields might indicate better times for bonds, rate cut anticipation driving yields lower isn't necessarily a balm for stocks. If the Fed trims rates, it will be for the "wrong" reasons, namely a slowing economy. But the economy isn't slowing all at once. Already, there's a shift in earnings data that's reflected in the market and points to possible struggles for equities. The biggest companies have led the earnings parade and it's not even close. Communication services and info tech earnings per share rose double digits in the second quarter while many sectors not dominated by the Magnificent Seven were flat or even in the red on their collective bottom lines. Looking ahead, third quarter earnings expectations from FactSet show a possible improvement, with annual earnings per share growth of 9% or higher seen for five S&P 500 sectors. One of those is tech, but others include materials, financials, utilities, and industrials, a healthy mix of defensive and cyclical segments.
    
3. Bracing for next week's CPI: Though rate cut hopes keep rising, next week's July inflation data could still make the argument for caution if it comes in hot. June's Personal Consumption Expenditures (PCE) price index inched higher, and the latest ISM data showed prices paid rising in the services sector. The inflation genie isn't necessarily back in the bottle, evidently. Next Tuesday's Consumer Price Index (CPI) is seen as relatively mundane with analysts expecting 0.2% monthly growth in headline CPI and the same for core CPI, which excludes volatile food and energy. That compares with 0.3% and 0.2%, respectively, in June. However, annual core CPI is seen ticking up to 3% from 2.9% in June, meaning it's well above the Fed's 2% target. This may not make much of a difference if the Fed is truly more focused on a slowing economy, and President Trump's nomination yesterday of Stephen Miran to the Fed's Board of Governors appears to be another step toward easing. In one sign that perhaps the Fed doesn't need to worry as much about inflation, second quarter productivity rose 2.4% following a 1.8% first quarter drop. This suggests companies are getting more done with lower costs, which over time could help tame inflation.

• Expedia (EXPE) skyrocketed nearly 16% early Friday. The online travel agent raised its estimate for 2025 gross bookings growth and said it's seen an uptick in overall travel demand, especially in the U.S., Reuters reported.
   
• Block (XYZ) soared more than 8% in pre-market trading despite reporting weaker-than-expected results late Thursday. Investors appeared to cheer the company's increased forecast.
   
• Monster Beverage (MNST) jumped nearly 8% early Friday after a strong quarter marked by rising demand for energy drinks.
   
• Wendy's (WEN) slipped nearly 1% despite earnings beating Wall Street's expectations. Guidance appeared to disappoint.
   
• Under Armour (UAA) plunged 17% in early trading, though results matched analysts' projections. The company's guidance for falling revenue and lower operating income this quarter hurt shares, and it cited tariffs.
   
• Gilead Sciences (GILD) climbed 4.7% in the early going after reporting solid earnings and raising guidance. The company's HIV medicine saw firm demand, Barron's reported.
   
• The Trade Desk (TTD), a cloud-based ad tech firm, saw shares fall more than 31% this morning as it warned that tariffs could have an effect on ad demand and announced the departure of its CFO. Earnings exceeded expectations.
   
• Pinterest (PINS) plunged nearly 12% as earnings missed analysts' expectations.
   
• Take-Two Interactive Software (TTWO) climbed nearly 6% on better-than-expected earnings from the game developer.
   
• Stocks heavily exposed to higher tariffs, including lululemon (LULU), Nike (NKE), Toyota (TM), Caterpillar (CAT), Deere (DE), Walmart (WMT), Best Buy (BBY), and Honeywell (HON), ended in the red yesterday as tariffs took effect. U.S. consumers face an overall average effective tariff rate of 18.6%, up 16.2 basis points from 2024 and the highest since 1933, according to The Budget Lab at Yale.
   
• Salesforce (CRM) fell more than 3% yesterday as software stocks sagged following a plunge in shares of cybersecurity firm Fortinet (FTNT), which implied in its forecast that a software product refresh cycle would be smaller than expected, according to CNBC. The weakness in Salesforce and Caterpillar sent the Dow Jones Industrial Average to sharper losses than other indexes Thursday.
   
• Eli Lilly (LLY) suffered its worst day in 25 years Thursday, falling more than 14% as data on its obesity pill trial failed to impress investors, who turned a blind eye to the company's solid earnings and guidance.
• AppLovin (APP) spiked 12% yesterday on strong earnings and guidance.
   
• Technically, the 20-day moving average for the S&P 500 index has held on tests this week and may remain a support point. It currently sits at 6,318. The all-time high close of 6,389 appears to be a resistance point, as the index touched it yesterday and then sold off.
   
• Chances of a Fed rate cut next month are around 90%, according to the CME FedWatch Tool.

The Nasdaq Health Care Index (IXHC—candlesticks) is down 2.79% over the last year, well behind the 11.69% gain for the S&P 500 Equal Weight Index (SPXEW—purple line) and the 30.43% jump in the Nasdaq-100® (NDX-blue line) over that time period. Yesterday's plunge in Eli Lilly made matters worse for the struggling health sector. The sector is under-performing versus the S&P 500 more dramatically than at any time in the past 25 years.

August 11: Expected earnings from Barrick Mining (B) and AMC (AMC).
August 12: July CPI and expected earnings from Cardinal Health (CAH), Cava Group (CAVA), Circle Internet (CRCL), and CoreWeave (CRWV).   
August 13: Expected earnings from Cisco (CSCO).
August 14: July PPI and expected earnings from Deere (DE), JD.com (JD), Tapestry (TPR), and Applied Materials (AMAT).
August 15: July retail sales, July industrial production, and preliminary August University of Michigan Consumer Sentiment.