Nonfarm payrolls plunge by 23,000—'a shocking miss'! S&P 500 hits a new all-time closing high, but Bank of America’s risk signal has already turned red!

Guys, Friday’s market action can be summed up in one sentence: the worse the data, the happier the stock market.

On Friday (August 7), all three major U.S. stock indices closed higher. The S&P 500 rose 0.62% to close at 7,757.64, setting a new record high; the Nasdaq Composite gained 1.30% to end at 26,690.62; and the Dow Jones Industrial Average advanced 0.28% to 54,036.93.

Even more impressive were the subsectors: the Nasdaq 100 posted a weekly gain of 5.12%, while the Philadelphia Semiconductor Index surged 2.56% in a single day and climbed 9.25% for the week. Gold also rallied sharply, briefly spiking to $4,370 during trading.

I. Where exactly was the 'coolness' in the nonfarm payrolls report?

The July nonfarm payrolls report released pre-market showed a loss of 23,000 jobs (versus an expected gain of 80,000)—not only failing to add jobs but actually shedding them. Even worse, prior figures were significantly revised downward: May’s number was slashed from 129,000 to 63,000, and June’s from 57,000 to 20,000, amounting to a combined downward revision of 103,000 jobs. Although the unemployment rate dipped to 4.1%, appearing favorable on the surface, the catch lies in the falling labor force participation rate—this improvement isn’t due to people finding jobs, but rather more individuals dropping out of the labor force altogether. Wage growth slowed to 3.2%, the weakest pace since May 2021. In summary, four signals align clearly: negative job creation, prior data revised sharply lower, a misleadingly improved unemployment rate, and slowing wage growth—all pointing to a genuine cooling in the labor market.

II. The interest rate market reacted more honestly than equities

Prior to the jobs report, markets priced in a roughly 55% probability of a September rate hike; after the data release, that figure dropped straight to 44%—a 10-percentage-point decline in a single day.

The logic chain is straightforward: cooling labor market → easing overheating pressures → reduced urgency for rate hikes → even shifting toward expectations of rate cuts → bullish for risk assets. U.S. equities benefit from improved liquidity conditions, while gold gains from falling real interest rates.

III. This week’s 'triple confirmation'

Wednesday (8/12): July CPI; Thursday (8/13): PPI; Friday (8/14): Retail Sales. If both CPI and PPI show simultaneous cooling, expectations for a September rate hike will weaken further.

I maintain my view: under the base case scenario, the Fed will neither hike nor cut rates this year; in an optimistic scenario, one rate cut is possible; in a pessimistic scenario, one hike could occur. This outlook rests on two key points: easing U.S.-Iran tensions have capped oil prices (preventing a surge toward $100), and tariff-driven inflationary effects are fading in the second and third quarters. Consequently, inflation is likely to gradually cool, leaving the Fed without strong impetus to raise rates aggressively.

IV. Optical Modules Provide Fundamental 'Endorsement' for Tech Stocks

After the market close on Friday, Applied Optoelectronics reported explosive earnings: revenue of $191.9 million (up 86% year-over-year and 27% quarter-over-quarter), marking its fifth consecutive quarterly record high; non-GAAP EPS came in at $0.06, beating expectations and returning the company to profitability. Its stock rose nearly 10% in after-hours trading.

The key lies in guidance: demand for 800G and 1.6T modules will continue to outstrip supply through mid-2027, with actual demand exceeding capacity by 20–40%. Q3 revenue guidance is $255–290 million (up ~130% year-over-year), implying full-year revenue of approximately $1.1 billion. In plain terms, growth is constrained by capacity—not demand—confirming that the AI infrastructure theme remains fundamentally robust.

This week’s earnings reports provide dense validation: Lumentum on Tuesday, Coherent on Wednesday (both previously backed by NVIDIA investment), and Applied Materials on Thursday (a proxy for demand in advanced process nodes, HBM, and DRAM equipment). As long as these companies deliver solid results, the certainty around the AI supply chain will further strengthen. This reaffirms my long-standing view: upstream hardware offers the strongest conviction—near-term volatility is merely a matter of timing, not direction.

V. Bank of America’s Risk Alert: Bull & Bear Indicator at 9.7

Bank of America’s Flow Show 'Bull & Bear Indicator' has surged to 9.7—the highest level since 2021. Readings above 8.0 trigger a 'sell signal.' During the previous cycle (June–July), the indicator climbed from 8.8 to 9.5, followed by a deleveraging-driven market correction; however, it only pulled back modestly without truly cooling off. This latest rally has been fast and concentrated (with capital crowding into tech and AI upstream plays). Although market breadth remains strong, positioning has become crowded again—a scenario BofA describes as potentially seeding 'Leverage 2.0.' BofA’s stance is clear: strategically bullish but tactically cautious, recommending reducing crowded positions rather than chasing rallies.

VI. My Trading Strategy

Position sizing always comes first.

My U.S. tech allocation stands at 77%. I’ve already completed left-side accumulation at lower levels, so I won’t chase prices here—enjoy gains if it rises, and add on dips.

If 'Leverage 2.0' materializes, I expect any pullback to be shallower than the last round, given the solid fundamental underpinning. I’ll simply add on weakness—the long-term bullish thesis remains intact.

In a nutshell: the non-farm payroll data reinforced expectations of rate cuts, and optical modules confirmed AI-sector strength—but overcrowding is flashing red. Hold your core position, avoid chasing highs, and wait for a pullback to add comfortably.

Feel free to like, comment, and follow—we’ll see you tomorrow.

Risk and disclaimer notice: The above content represents personal views only, does not reflect the position of any institution, and does not constitute investment advice. The market involves risks; please invest with caution.

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