On August 4, 2026, the US stock market entered another pivotal trading week. Following a strong start to August and a barrage of earnings from tech giants, the market's trading logic is quietly shifting. The July US nonfarm payrolls report, released before the open, missed expectations across the board, instantly igniting bets on a Federal Reserve rate cut in September. However, behind this liquidity-fueled euphoria, the upcoming July ISM Services PMI is emerging as the latest litmus test for the strength of the "US economic soft landing."
July Nonfarm Payrolls Disappoint: Rate Cut Hopes Rekindle, Market Sentiment Gets a Breather
According to data released by the Labor Department before the open, US nonfarm payrolls increased by about 125,000 in July, significantly below the market expectation of 168,000, with the previous month's figure also revised sharply lower. Meanwhile, the unemployment rate edged up to 4.3%, and average hourly earnings rose 3.6% year-over-year, indicating that inflationary pressures are steadily easing.
Following the release, the three major US stock futures quickly rallied. Dow Jones Industrial Average futures rose 0.4%, S&P 500 futures gained 0.6%, and Nasdaq 100 futures jumped nearly 1%. For investors closely tracking US market movements, this weak nonfarm report was a welcome relief. The market had previously been volatile on concerns the Fed might keep rates higher for longer, and the cooling labor market now provides the most direct data support for a monetary policy pivot.
According to the CME FedWatch Tool, after the nonfarm data release, the probability of a 25-basis-point rate cut in September priced into interest rate futures surged from 68% before the data to over 85%, with some aggressive institutions even beginning to bet on the possibility of a 50-basis-point cut.
Focus Shifts: ISM Services PMI Becomes the New Anchor for the "Soft Landing"
However, the disappointing nonfarm data is a double-edged sword. While it eases rate pressure, it also raises concerns about weakening economic fundamentals. As the current earnings season winds down, the next wave of momentum for US stocks will heavily depend on the resilience of economic data. Therefore, the July ISM Services PMI, due later this week, has become the most closely watched core indicator in the live US stock market.
The services sector accounts for over 80% of the US economy, and its expansion or contraction directly dictates GDP direction. The market currently expects the July ISM Services PMI to edge down to 51.0, still above the expansion threshold. If the actual data beats expectations, it will strongly prove that US consumer spending remains robust despite high interest rates, confirming the "economic soft landing" narrative and providing strong fundamental support for US stocks, especially cyclical and consumer stocks.
Conversely, if the ISM Services PMI unexpectedly falls below the 50 threshold, market sentiment could instantly shift from "rate cut euphoria" to "recession panic." In that scenario, the VIX fear gauge would likely spike significantly, and US stocks could revisit the pullback previously led by tech giants.
Pre-Market Movers: Tech Earnings Settle, Sector Rotation Quietly Begins
Under the dual pressure of the nonfarm data and PMI expectations, the pre-market and after-hours markets are showing significant sector divergence. Looking at pre-market movers, the "Magnificent Seven" tech stocks that previously led the market rally are showing mixed performance. Some AI hardware leaders, despite beating earnings estimates, saw slight pre-market declines due to management's conservative guidance on future capital expenditure. In stark contrast, interest-rate-sensitive sectors like real estate and utilities led pre-market gains, indicating a clear defensive rotation of funds.
- Tech Stock Dynamics: While the AI computing arms race remains intense, the market's tolerance for high valuations is marginally decreasing. Investors are starting to scrutinize the monetization capabilities of tech giants more cautiously.
- China Concept Stocks: Most popular China concept stocks rose in pre-market trading. Boosted by Fed rate cut expectations, the offshore yuan strengthened, driving foreign capital back into emerging markets. Internet giants like Alibaba and PDD Holdings recorded decent pre-market gains.
- Cyclical Stock Recovery: As soft landing expectations heat up, previously pressured industrial manufacturing and materials sectors are showing signs of fund replenishment in pre-market trading.
Market Sentiment Indicators: VIX Falls, but Underlying Concerns Remain
Looking at US market sentiment indicators, the VIX fear index dipped sharply after the nonfarm data release, reflecting cooling risk aversion. However, implied volatility in the options market did not see a comparable decline, suggesting that institutional investors are still hedging against potential sharp market swings ahead.
For cross-border investors from Taiwan and Hong Kong allocating funds, the current US stock market is at an extremely sensitive crossroads. On one hand, expectations of loose liquidity are bullish for risk assets; on the other, the shadow over economic fundamentals has not yet lifted. Before the ISM Services PMI data is officially released, blindly chasing the rally is clearly not a wise move.
Huigang Strategy: Trading Ideas for Live US Stocks
Considering current US stock index trends and capital flows, we suggest investors adopt a "barbell" strategy in the coming trading sessions: continue allocating to tech giants with strong cash flow and shareholder return capabilities to capture the long-term AI narrative, while also buying high-quality healthcare and high-dividend yield stocks that are rate-sensitive and fundamentally sound on dips.
Additionally, closely monitor the calendar of major US market events this week. Besides the ISM Services PMI, speeches from several Fed officials will provide clearer guidance on the monetary policy path. After the nonfarm data ignited rate-cut frenzy, the US stock market needs further validation from economic data to support the next leg up. Investors should pay close attention to sudden changes in pre-market and after-hours data, flexibly adjust positions, and seize trading opportunities arising from sector rotation.
