Proflex Aug 3-7 (Special Edition) - Hike Off the Table, Semis Snap Back, AI Trade

That is a soft report. Stocks rallied anyway, and the reason is simple: this was the number that killed the September hike.

Ten days ago the market was pricing roughly a one in three chance of a hold & By Friday afternoon CME FedWatch had hold back to about 60% and the hike as the underdog.
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The two year yield fell more than 5 basis points to 4.193%, the lowest since July 17. The 10 year eased to 4.639%.

The S&P 500 closed Friday at a record 7,757.64, up 3.58% on the week and 13.7% on the year.
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The Nasdaq Composite added 5.2%. VIX closed at 14.90. Underneath that, the semiconductor complex that was left for dead three weeks ago put in one of its strongest weeks of the cycle.

Two weeks ago we wrote that the fundamentals did not break, the leverage did. This week the market agreed with us in price.

Key Drivers This Week
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The Jobs Report Took the Hike Off the Table

The important detail is not the headline. It is the mix.

The 53,000 government job losses and the 40,000 drop in leisure and hospitality are the visible parts of a labor market that is cooling in the low quality places first. Private payrolls stayed positive. Unemployment sits at 4.1%. Wages at 3.2% remove the last credible wage push inflation argument a hawk had left.

That combination is exactly what a market wants at this point in the cycle. It is slow enough to stop a hike and not slow enough to reprice earnings.

The revisions matter more than most people are treating them: 103,000 jobs that the market believed existed in May and June did not exist. The labor market has been weaker than the tape assumed for a full quarter.

The Fed remains at 3.50% to 3.75%, unchanged since July 29. The next decision is September 15 and 16, and it now carries a dot plot with it. Between here and there sit two CPI prints.

The Semiconductor Liquidation Is Behind Us

Put the numbers next to each other.

The SOX peaked at 14,634 on June 22 and bottomed at 10,447 on July 29. That is a 28.6% drawdown in twenty eight days. SMH fell 22.1% in July alone, its worst month since 2002. And then it stopped.

• SOX closed Friday at 12,356.79, up 18.2% off the July 29 low, still 15.7% below the June peak
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• On the week: Nvidia +11.6%, Intel +12.7%, Broadcom +9.9%, Micron +6.6%, Microsoft +7.6%
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• Technology as a sector added 7.2%
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• SOXX took in a record $6.9 billion during the July selloff, the largest monthly inflow in the fund's history

That last line is the one to sit with. The money that came in during the liquidation was buying the drawdown, not fleeing it. That is what a positioning washout looks like from the other side.

Nothing in the fundamentals broke while the price did. AMD reported on August 4: revenue $11.54 billion, up 50% year over year, data center revenue $6.7 billion, doubled year over year, with third quarter guidance near $13 billion.
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Across the index, 88% of the S&P 500 has now reported second quarter results with blended earnings growth of 50.4%, or 32.0% stripping out Alphabet and Amazon, and an 86% EPS beat rate.

The Whole Market Is Now One Big AI Trade

Here is the uncomfortable structure of this market.

The S&P 500 is at a record. Two names, Alphabet and Nvidia, account for roughly one third of the index's 2026 gain, on Bank of America's numbers.
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Hyperscaler capital expenditure for 2026 runs to about $725 billion, up 77% from last year, and Bank of America now models $1.2 trillion over the next twelve months.

Now ask what that spending is underwritten by.

• OpenAI: roughly $25 billion annualized revenue, essentially flat since February, against a projected $14 billion loss for 2026
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• Anthropic: roughly $47 billion annualized as of May, valued at $965 billion in its May round, S-1 filed June 1 for an October listing
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• xAI: burning close to $1 billion a month as of January
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• Google Gemini: about $12 billion annualized

Three of those four are private. None of them are audited. The most important revenue line in the world's largest equity market is a set of run rate figures that leak out of private companies once a month, and every hyperscaler capex commitment, every Nvidia order book, every memory contract is downstream of them.

Then there is the circularity.

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Oracle has a $300 billion five year contract with OpenAI starting 2027. AMD has a six gigawatt agreement with OpenAI attached to warrants for 160 million shares.
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Nvidia has been in discussions to provide roughly $250 billion of financing guarantees against a data center project costing more than $500 billion. The vendor is increasingly financing the customer.

And yet the valuation case is not what it was in 1999. Goldman Sachs puts the Magnificent Seven at about 28 times forward earnings against 66 times for the seven largest stocks in 1999, and the aggregate tech multiple at 22 times against 27 times in 2000.
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Barclays calls it euphoria rather than excess. Bank of America's own bubble risk indicator for semiconductors reads 0.91 out of 1.0.

Both things are true at once. That is precisely the problem, and precisely why this is the most important question in the market right now.

The Week Ahead: CPI, Auctions and a Strait That Is Not Reopening

After a packed fortnight, the calendar thins out. The catalysts that remain are concentrated.

Data. July CPI lands Wednesday at 8:30am ET, the week's main event. June printed 3.5% headline and 2.6% core, both below consensus. PPI follows Thursday, retail sales and preliminary University of Michigan sentiment on Friday.
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Monday brings existing home sales and the New York Fed's second quarter household debt report, where first quarter debt stood at $18.8 trillion with 4.8% in some stage of delinquency. NFIB small business sentiment Thursday. Weekly claims as usual.

Supply. The refunding restarts with $58 billion of 3 year notes Tuesday, $42 billion of 10 years Wednesday and $25 billion of 30 years Thursday.
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That is $125 billion of new issuance raising roughly $28.7 billion of cash. Wednesday's 10 year auction lands hours after CPI, which is the sequencing to watch.

Earnings. The wind down phase. Only about 1% of the S&P by earnings weight reports, twelve components, with Cisco Wednesday (consensus $1.17 EPS on $16.83 billion) and Applied Materials Thursday (consensus $3.39 on $9.01 billion) the only names above $100 billion of market value.
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​Iran: Nothing has resolved. The US reimposed the naval blockade on August 8 after renewed attacks on commercial vessels. Trump told Axios on August 9 that "we are low keying it" and "we are only semi negotiating with them," having been talked out of resuming major strikes in late July.
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Fewer than 10 vessels a day are transiting the Strait against a normal baseline that Kalshi's own contract sets at more than 60. Brent sits near $82, WTI at $78.31 on Friday before jumping 4.4% Saturday when CENTCOM intercepted an Iranian attack.

The Iranian position hardened rather than softened. Mohammad Bagher Zolghadr laid out reopening terms that are red lines for Washington, complete compensation for war damage, full sanctions relief, unconditional release of frozen assets, then resigned and was replaced at the Supreme National Security Council by Mohsen Rezaei.

🔍 What We're Watching

• July CPI Wednesday: a core print above 2.9% puts the September hike straight back on the board
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• Wednesday's 10 year auction, hours after CPI, as the real test of whether yields fall for the right reason
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• The SOX at 12,200: reclaiming 13,000 confirms a base, losing the July 29 low of 10,447 says the liquidation was not finished
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• Nvidia on August 26 as the referendum on the entire AI capex chain
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• Private lab revenue leaks: OpenAI's run rate has been flat since February and nobody is talking about it

🧭 Proflex Playbook – Buy the Progression, Not the Narrative​​
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​The AI trade is delivering earnings progression while the market re litigates the bull case. That gap between what the numbers say and what the tape says is where the opportunity is, provided you are in the right half of the supply chain.
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Our conviction stays anchored in the data:

• Focus on Structural Growth: Continue to overweight the secular AI theme, recognizing its multi-year runway.
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• Anticipate Shallow Corrections: Use dips as accumulation opportunities, not reasons for fear, understanding that "none of the corrections stick."
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• Diversify Thoughtfully: Recognize the "decorrelation" across asset classes; consider gold, silver and Bitcoin for portfolio resilience.
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• Develop Mental Models: Prioritize long-term planning (6-12 months out) over short-term news, aiming for consistent, incremental gains.

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If you're an All-Access or Managed Portfolio subscriber, our positioning has already shifted ahead of this moment—scaling up asymmetric hard asset plays while hedging for earnings volatility and geopolitical tail risks.

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Until next week,
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— The Proflex Team
​ Trusted Macro Insights. Calm Investing. Tactical Trades.