Wall Street faces a critical week as investors weigh corporate earnings from major U.S. companies against closely watched jobs reports, searching for evidence that consumer spending can withstand persistent inflation pressures. The data will help determine whether recent market gains rest on solid economic footing or inflated expectations.
Bleach and household products maker Clorox and hotel operator Marriott International report results on Monday. Elon Musk's satellite, rocket and AI company SpaceX, formally known as Space Exploration Technologies, releases earnings on Tuesday. The company made its market debut in June, and the stock has since surged well above and then fallen below its opening price. McDonald's also reports earnings on Tuesday, with online travel company Expedia Group following on Wednesday.
Corporate Profits Under Scrutiny
More than half of companies in the S&P 500 have already reported results, and profit growth has been strong. Major indexes have set records throughout the year. The latest round of profits could help investors judge whether those higher stock values are justified. That's no small question when market valuations have climbed steadily even as economic uncertainty persists.
Wall Street also has several economic reports to review this week, including key updates on the U.S. jobs market. The U.S. will release its report on job openings for June on Tuesday, and the most important update comes Friday with the monthly employment report for July. Employment remains one of the stronger parts of the U.S. economy, but job growth has been slowing amid broader concerns about inflation hurting households and businesses.
Fed Signals Tougher Stance
The Federal Reserve left interest rates unchanged Wednesday afternoon, but three of the 12 members on the central bank's policymaking committee voted for a hike. The opposition to holding borrowing costs steady reflected growing concern that inflation has remained above the Fed's 2% target for too long, with higher energy prices on renewed Iran war tensions adding to the pressure. During his post-July meeting news conference, Fed Chairman Kevin Warsh tried to reassure markets that policymakers would act when necessary.
The bond market wanted more than tough talk. The 10-year Treasury yield climbed above 4.67%, while the 30-year yield surged above 5.2% to its highest level since 2007. Stocks sank on that surge in yields, and the Dow plunged more than 1,100 points, or 2.2%, on Wednesday, its worst one-day decline since April 2025. Stocks recovered and finished the week higher, but the 10-year topped 4.7% on Friday.
The Dow Jones Industrial Average rose 1% for the week, snapping a three-week losing streak. The S&P 500 gained 1% last week, while the tech-heavy Nasdaq climbed 1.6%. Both avoided three down weeks in a row. For July, the Dow edged up 0.32%, extending its monthly win streak to four. The S&P 500 fell 0.13% in July, and the Nasdaq fell 3.2%, marking back-to-back monthly losses for both.
AI Spending Divides Winners and Losers
The recent reversal of the "long AI hardware, short software" trade, which had been working all year, was exacerbated by forced selling by Situational Awareness, a highly leveraged hedge fund founded by former OpenAI researcher Leopold Aschenbrenner. The fund had to offload its troubled bets, which helped stabilize the rocky AI trade. Jim Cramer on Thursday morning called the liquidation "one of the more sure signals to buy," arguing that the unwind could mark a turning point by removing a significant source of indiscriminate selling pressure. Cramer also said the implosion of Situational Awareness was a cautionary tale about the dangers of investing with borrowed money, adding that he has consistently cautioned investors against buying stocks on margin.
Microsoft and Amazon showed investors what successful AI spending looks like. Microsoft kept its underlying capital spending outlook relatively disciplined while generating $19 billion in quarterly free cash flow. Amazon raised its full-year capital expenditure forecast by $20 billion, but Amazon Web Services delivered its fastest revenue growth in 18 quarters, and CEO Andy Jassy explained how those investments should translate into higher returns as new data centers come online. Investors rewarded both companies, with weekly gains of 21% for Microsoft and 17% for Amazon. Cramer said Microsoft had gone from "most hated" to "most loved," and urged investors to "stay long. Do not touch it."
Meta Platforms, however, reminded investors that spending alone isn't enough. Although the Facebook and Instagram parent continued to post strong advertising growth, investors focused on a softer revenue outlook, higher capital spending and a roughly 91% decline in free cash flow. On the post-earnings conference call, CEO Mark Zuckerberg did little to convince investors that Meta's massive AI spending will translate into meaningful financial returns anytime soon. Shares fell hard on Thursday and ended the week down more than 6%. Cramer said, "My hedge fund hat would say sell it. I really didn't like the quarter."
Apple faced a different challenge when it reported quarterly results Thursday evening. The iPhone maker beat revenue and earnings expectations, but higher memory prices, supply constraints and softer guidance overshadowed the quarter. Apple has already raised prices on some Macs and iPads to offset those higher costs, and investors are waiting to see whether the company will do the same with its next iPhone lineup. Unlike its hyperscaler peers, Apple has largely avoided the AI spending arms race, and investors have rewarded that capital-light strategy as the company improves its AI offerings through partnerships with Alphabet. Shares of Apple sank on Friday and finished the week down more than 7%. Cramer called the Apple quarter "fantastic," saying the company's biggest challenge isn't AI but supply. "They just can't meet demand."
Why This Matters:
The coming week will test whether corporate America can continue delivering profits that justify elevated stock valuations while navigating persistent inflation and a more hawkish Federal Reserve. Employment data remains crucial for the central bank as it weighs whether current interest rates are sufficient to bring inflation back to its 2% target without triggering a recession. The divergence in Big Tech earnings reveals that capital discipline matters as much as innovation—companies that can articulate clear returns on AI investments are winning investor confidence, while those burning cash without demonstrable payoffs are being punished. For households and businesses, the stakes are high: slowing job growth combined with stubborn inflation could squeeze consumer spending, the engine of U.S. economic growth. The bond market's sharp reaction to the Fed's hawkish signals suggests investors are bracing for higher borrowing costs to persist, which could cool both business investment and consumer demand.