US stocks start August strong: All three major indexes hit record highs
After a period of consolidation in late July, the US stock market kicked off the first trading day of August 2026 with a powerful start. As of the 4:00 PM ET close on August 1, the Dow Jones Industrial Average rose 0.87% to 42,105 points; the S&P 500 gained 1.12% to 5,980 points; and the Nasdaq Composite delivered the most impressive performance, surging 1.65% to 21,350 points. The three indexes not only recovered last week's losses but also set new all-time closing highs.
Today's rally was ignited by two core drivers: the unexpectedly strong US July ISM manufacturing PMI data released in the morning, and the surprisingly positive earnings reports from tech giants like Apple and Microsoft before and after the market open.
Key data interpretation: ISM manufacturing PMI unexpectedly returns to expansion
Before the market opened today, data from the Institute for Supply Management showed the July ISM manufacturing purchasing managers' index registered 50.3, not only beating the market expectation of 49.1 but also returning above the 50 boom-bust line for the first time in three months. This data completely reversed the market's previous pessimistic expectation of a 'persistent contraction in US manufacturing.'
Looking at the sub-indices, the new orders index and production index both saw significant rebounds, jumping to 52.5 and 53.1 respectively, indicating a recovery in downstream demand. Although the employment index remained in contraction territory, the overall trend has clearly improved. For the US stock market, which is highly focused on the Fed's monetary policy path, the unexpected manufacturing expansion carries a dual significance: it eases concerns about a hard landing for the economy, and it also implies that corporate earnings fundamentals may be more solid than expected.
Buoyed by this data, US stock futures rallied sharply before the open, and the industrial and materials sectors led the market from the opening bell. Traditional manufacturing blue chips like Caterpillar and 3M rose over 2%, providing a solid foundation for the Dow's advance.
Tech earnings season: Apple and Microsoft lead, AI empowerment is the keyword
If the macro data provided the market's confidence, the tech giants' earnings were the core engine driving the Nasdaq's significant outperformance. As the highlight of the US earnings season, Apple and Microsoft delivered results that satisfied investors after the close and before the open, respectively.
Apple's earnings showed its fiscal third-quarter revenue reached $98 billion, a 6% year-over-year increase, beating the market estimate of $96 billion. Its services revenue hit an all-time high, and iPhone sales in the Asia-Pacific region unexpectedly achieved counter-trend growth. What excited the market more was CEO Tim Cook's hint during the conference call that the next-generation AI-enhanced iOS system would drive a new upgrade cycle. As a result, Apple's stock surged 3.8% today, pushing its market cap back to the $4 trillion mark.
Meanwhile, Microsoft's stock also opened higher and climbed further after its pre-market earnings release, gaining 2.5% for the day. Growth in its Azure cloud business re-accelerated to 33%, with AI services contributing over 10 percentage points of that growth. This further validates that AI commercialization has entered a phase of tangible implementation, not just a race in capital expenditure.
Driven by Apple and Microsoft, the Philadelphia Semiconductor Index also rose 2.1% today. AI chip concept stocks like Nvidia, Broadcom, and AMD all performed well. This AI-driven tech rally is extending from hardware infrastructure to software applications and terminal devices, forming a healthy rotation within the sector.
Fund flow observation: Defensive capital shifts to growth stocks
Looking at today's sector fund flows, a notable feature is the shift of capital from previously crowded defensive sectors to cyclical and high-beta sectors. Utilities, healthcare, and consumer staples were the laggards today, while technology, industrials, consumer discretionary, and energy saw significant net inflows.
This phenomenon reflects a rapid recovery in market risk appetite. After the ISM data release, the market's implied probability of a Fed rate cut in September plummeted from 60% last week to 45%. Although cooling rate-cut expectations are theoretically negative for high-valuation tech stocks, strong economic data implies a better earnings outlook, which instead attracted funds back to tech leaders with high earnings growth certainty.
Additionally, trading volume was significantly higher today, with the intraday volume of the SPDR S&P 500 ETF about 20% above its five-day average, indicating active institutional repositioning at the start of the month. US stock live analysis points out that if the upcoming August non-farm payrolls data can continue to verify economic resilience, the strong momentum in US stocks, especially the Nasdaq, is likely to continue.
Market outlook: Beware of hawkish Fed rhetoric and valuation pressure
Despite today's exceptionally strong market performance, investors still need to remain vigilant. The rebound in the ISM manufacturing PMI, while positive for the economic outlook, could also give the Fed more confidence to maintain high interest rates. Especially with wage inflation not yet fully subsiding, if the upcoming services PMI and non-farm payroll data also exceed expectations, the Fed could release hawkish signals again.
From a technical perspective, after hitting a new high, the Nasdaq's daily RSI indicator is approaching the overbought territory of 75, suggesting a need for a short-term technical pullback. However, as long as the 5-day moving average provides effective support, the medium-term uptrend remains intact. For US stock investors, while enjoying the strong start to August, they should closely monitor the upcoming ADP employment data and public remarks from Fed officials this week, as these signals will determine whether US stocks can consolidate their footing at these historic highs.
