Good evening,

Last week delivered exactly what this market wanted.

Not perfect economic data.

Not an end to geopolitical risk.

Something more useful:

A reason for the Federal Reserve not to become more aggressive — without corporate earnings falling apart.

The S&P 500 closed Friday at a record 7,757.64, gaining 3.58% for the week. The Nasdaq jumped 5.19%, while the Dow advanced 2.96%. All three posted their strongest weekly percentage gains since April.

Friday provided the final push. The U.S. unexpectedly lost 23,000 jobs in July, compared with economists expecting an 80,000 increase. The unemployment rate actually edged down to 4.1%, partly because people left the labour force. More importantly for markets, the probability of a September Fed rate increase fell to roughly 44%, from 67% a week earlier.

That sounds bullish.

But there is a catch.

Weak employment is good for stocks only while investors believe inflation is cooling and earnings remain strong.

Wednesday puts that assumption to the test.

🚨 The Three Numbers That Matter

1. S&P 500: 7,757

The S&P 500 finished Friday at 7,757.64, a fresh record close, and is now up more than 13% in 2026.

That is impressive considering what investors have absorbed this year: war-driven energy volatility, elevated bond yields, questions about AI spending and uncertainty over the Fed.

But records change the game.

At depressed prices, investors ask:

“How bad can things get?”

At record prices, they ask:

“What can possibly get better from here?”

My tactical level this week is 7,700.

This is not some magical technical number. It is simply a useful line for judging whether investors are willing to defend last week’s breakout. Holding above it after CPI would suggest buyers are still comfortable paying record prices.

A quick fall back below it—especially after apparently “good” economic news—would be more revealing.

That could tell us expectations have moved faster than fundamentals.

2. 10-Year Treasury: 4.64%

This might be the most important chart in the market that is not a stock chart.

The benchmark 10-year Treasury yield has retreated to around 4.64% after reaching its highest level since January 2025 in late July. Falling oil prices and Friday’s weak employment report helped remove some of the pressure.

For expensive technology stocks, that matters enormously.

AI companies can produce extraordinary revenue growth and still struggle if yields keep climbing because higher rates make future earnings less valuable today.

This week, I would watch the bond market almost as closely as the S&P.

Below roughly 4.60%: growth stocks get breathing room.

Around 4.60%–4.70%: probably manageable.

A decisive move above 4.70% following CPI: warning sign.

The market can tolerate high rates.

It has much more difficulty tolerating rates that suddenly need to move even higher.

3. CPI: 3.4%

This is the number that could determine the entire week.

Economists surveyed by Reuters expect Wednesday’s July CPI report to show headline inflation running at 3.4% year over year, while core CPI is expected at 2.5%.

There are three possible market reactions.

A softer number would reinforce the idea that the Fed can stay patient despite inflation remaining above target.

A roughly in-line number probably keeps the current Goldilocks narrative alive.

But a meaningful upside surprise creates a much harder problem.

The Fed would then face weakening employment and stubborn inflation simultaneously.

Cutting rates becomes difficult.

Hiking rates becomes economically dangerous.

And doing nothing becomes increasingly uncomfortable.

That is why Wednesday is bigger than simply asking whether CPI “beats” or “misses.”

The real question is whether inflation gives the Fed room to tolerate a weaker labour market.

🔥 What Changed Last Week

The market’s internal narrative changed considerably.

One week ago, investors were worried that strong economic activity, high energy prices and persistent inflation might force the Fed toward another rate increase.

Friday’s employment report weakened that argument.

But something equally important happened on the corporate side.

Of the 436 S&P 500 companies that had reported through Friday morning, 85.1% had beaten analyst earnings expectations, well above the long-run average of 68%, according to LSEG data cited by Reuters.

That gives investors a powerful combination:

slower labour market + strong profits + lower oil + lower probability of tighter monetary policy.

That combination explains why bad employment data produced a record S&P close instead of a growth scare.

But it also means Wednesday’s CPI has unusually high leverage.

If inflation cooperates, the narrative survives.

If inflation accelerates, several bullish assumptions become vulnerable at once.

🤖 The AI Trade Gets Three New Tests

AI remains one of the strongest structural drivers of this market, but last week showed something important:

Investors are no longer rewarding AI spending automatically.

AMD and newly public SpaceX both experienced sharp post-earnings declines during the week despite strong revenue performance, reflecting growing sensitivity to spending, expectations and returns on AI investment.

This week gives us three particularly useful read-throughs.

CoreWeave reports Tuesday, August 11. This is one of the purest public tests of AI infrastructure demand because its economics are directly tied to GPU capacity, data centres, financing and the willingness of AI customers to commit to enormous amounts of compute. CoreWeave has confirmed its Q2 2026 call for Tuesday at 5 p.m. ET.

Cisco reports Wednesday, August 12. Cisco has quietly become an important AI-infrastructure indicator. Last quarter, it reported $5.3 billion of hyperscaler AI-infrastructure orders year-to-date and raised its expected FY2026 AI-infrastructure orders to $9 billion.

Then Applied Materials reports Thursday, August 13. Its semiconductor-manufacturing equipment gives investors another window into how aggressively the chip industry is investing in the capacity required for AI, advanced memory and next-generation semiconductor production. The company has confirmed its fiscal Q3 call for Thursday after the close.

This is what I would watch in all three:

Not just revenue.

Not just EPS.

Orders. Backlog. Capex. Guidance. AI demand visibility.

The AI trade is moving from:

toward:

That transition matters.

🛢️ Don’t Forget Oil

The market has enjoyed some relief because U.S. crude fell below $80 last week. Lower oil removes one of the most immediate sources of inflation pressure.

But geopolitical risk has not disappeared.

Iran said Sunday that its proposed agreement with Oman over new shipping lanes in the Strait of Hormuz was in its final stages, while also making clear that the agreement alone would not automatically reopen the waterway. Further U.S.-Iran conditions remain unresolved.

That makes oil an asymmetric risk.

If diplomatic progress continues, crude may stay contained and help inflation.

If negotiations deteriorate, energy can quickly return as a market problem.

So this week:

CPI tells us where inflation has been.

Oil may tell us where inflation is going.

📅 The Week Ahead

Here is the sequence I’m watching:

• Tuesday — CoreWeave earnings: AI cloud demand, capacity growth and spending economics.
• Wednesday — July CPI + Cisco earnings: potentially the most important day of the week for both rates and AI infrastructure.
• Thursday — PPI + Applied Materials earnings: wholesale inflation followed by another major semiconductor-demand signal. The BLS has confirmed the July PPI release for August 13 at 8:30 a.m. ET.
• Friday — Retail sales: the final test asks whether the American consumer is weakening alongside employment. The Census Bureau lists the next advance retail-sales release for August 14.

🎯 Three Scenarios for the Week

🟢 Bull Case

CPI meets or undershoots expectations.

The 10-year yield stays contained.

Oil remains below recent highs.

Cisco, CoreWeave and Applied Materials reinforce the idea that AI infrastructure spending remains strong.

In that environment, last week’s breakout could broaden beyond mega-cap technology.

That would be the healthier signal.

🟡 Base Case

CPI is close to expectations.

Yields remain around current levels.

AI earnings are good but not spectacular.

The S&P digests its 3.6% weekly surge around record highs.

That would not worry me.

After such a powerful rebound, sideways trading would actually be constructive.

🔴 Bear Case

CPI surprises materially higher.

Treasury yields jump.

Oil rebounds on deteriorating Middle East negotiations.

At the same time, AI companies talk more about capital requirements than accelerating returns.

That combination could revive the two concerns markets temporarily forgot last week:

inflation risk + AI valuation risk.

🔍 The Signal I Care About Most

It isn’t simply whether the S&P 500 finishes next week higher.

I want to see what leads.

Semiconductor stocks have risen more than 70% this year, yet the Philadelphia Semiconductor Index remains more than 15% below its late-June high. That divergence tells us the AI trade is powerful but still unstable.

If CPI is benign and we see semiconductors, financials, industrials and smaller companies participate alongside mega-cap technology, the rally becomes significantly healthier.

If the indexes rise while leadership narrows back toward a handful of AI winners, I would be more cautious.

Index strength is good.

Breadth confirms it.

🧠 Sunday Edge

Last week answered one question:

Can this market still rally?

Absolutely.

The S&P 500 just reached a record after its strongest week since April.

But this week asks the harder question:

Can the economy cool enough to keep the Fed patient without cooling enough to damage corporate profits?

That is the narrow path markets are pricing.

Wednesday’s CPI is the first major test.

My dashboard for the week is simple:

S&P 500: 7,700​
​10-year Treasury: ~4.64%​
​CPI consensus: 3.4%​
​WTI: watch $80​
​AI: CRWV → CSCO → AMAT

If inflation behaves, yields stay contained and AI demand remains durable, the market has a credible path higher.

If those three signals begin moving against each other, this record-high market could become much less forgiving.

The rally has momentum.

Now inflation has to let it breathe.

— Market Signal Brief

For informational purposes only. Nothing here is personalised investment advice.

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