New Record Highs and the AI Profit Machine: What This Week Told Us About the Market’s Next Move | Week Ending 8 August 2026

The Week in Numbers

The US market delivered its best week in months, with every major index finishing higher:

• S&P 500: +3.6% — closed at a record 7,757.64, having cleared 7,700 for the first time ever earlier in the week
• Nasdaq Composite: +5.2% — led by a sharp rebound in chip and AI-related stocks
• Dow Jones Industrial Average: also posted solid gains and hit new records during the week

A softer-than-expected US jobs report on Friday (non-farm payrolls fell 23,000 versus expectations of a gain) helped ease near-term rate-hike concerns and supported the strong close.

The Australian dollar tracked the risk-on mood, strengthening toward 0.707 against the US dollar by Friday — near the upper end of its recent range. For Australians holding unhedged US equities, that AUD strength is quietly eating into your returns. More on that below.

The Story of the Week: Palantir’s Nearly 30% Session

If there was a single trade that defined the week, it was Palantir.

On Tuesday, 4 August, Palantir Technologies reported Q2 2026 revenue of $1.94 billion — a 93% increase from the same quarter last year and well ahead of analyst expectations. Adjusted earnings per share came in at $0.41, beating the roughly $0.35 consensus. The company also raised its full-year guidance.

The stock surged 29.5% in a single session.

The headline number is striking, but the detail that matters more for investors is where the growth came from. Palantir’s US commercial revenue — the segment that sells AI decision-intelligence tools to private companies, not government contracts — surged 149%. That’s the number that tells you this isn’t primarily a defence-spending story anymore. Corporations are buying Palantir’s AI software at scale, and they’re paying for it.

That shift matters for the broader market thesis.

Read our Palantir Special Edition deep dive this week here.

The AI Profit Cycle Is Widening — This Is What That Looks Like

For the past 18 months, the story has been that a handful of mega-cap tech companies (the “Magnificent Seven”) were generating the bulk of earnings growth while everyone else treaded water.

That is changing.

The Magnificent Seven’s dominance of S&P 500 earnings growth has narrowed meaningfully over recent quarters as more companies begin printing genuine AI-driven profit, not just spending on it.

Q2 2026 earnings season confirmed the broadening. Blended year-over-year earnings growth for the S&P 500 stood at 50.4% as of early August (up from 47.4% the prior week) — the strongest quarter since 2021. Even excluding Alphabet’s large mark-to-market gains on equity holdings in SpaceX and Anthropic (approximately $98–99 billion) and Amazon’s exceptional cloud quarter, the blended growth rate was still around 32%. That remains a genuinely strong result.

For Australian investors, this matters for one reason: the diversification argument for US equities just got stronger. It’s no longer a pure bet on a handful of companies. The profit engine is spreading.

Sector snapshot for the week:

• Technology led gains on the Palantir effect and broader chip recovery
• Financials have been quietly hitting record highs
• Industrials held gains on solid Caterpillar results
• Health Care remains the lone S&P 500 sector reporting year-over-year earnings declines

The Fed Is Divided — and Markets Are Starting to Price That In

The Federal Reserve held the federal funds rate steady at 3.50–3.75% at its July meeting, but the vote was 9-3 — the most contentious split in years. Three regional Fed presidents dissented and called for a 25-basis-point rate hike: Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’s Lorie Logan.

Their argument: inflation has sat above the Fed’s 2% target for more than five years. Oil prices surged more than 20% in July after the June ceasefire with Iran collapsed. The labour market is solid enough to absorb a hike.

Markets have historically underreacted to dissents, but three dissents in the same direction is historically rare — the last time it happened was September 2016. It signals internal Fed pressure that could push the committee toward a hike at one of the next few meetings if inflation data doesn’t cooperate.

What does this mean for your portfolio?
A surprise rate-hike environment tends to:

• Pressure high-multiple growth stocks (P/E ratios compress when risk-free rates rise)
• Benefit financials, particularly banks (higher rates = wider net interest margins)
• Create AUD/USD volatility — a hawkish Fed typically strengthens the USD, which would mechanically reduce AUD-denominated returns on US holdings

Keep an eye on August CPI data. It will be the key input into the Fed’s September decision.

AUD/USD Watch: The Silent Tax on Your Returns

The Australian dollar strengthened toward 0.707 against the USD on Friday — near the top of its recent range and the upper end of its 2026 trading band so far.

If you bought US equities earlier this year when the AUD was sitting around 0.67–0.68, the AUD’s appreciation is quietly clawing back some of your gains. A portfolio of US stocks that’s up 10% in USD terms is only up about 3–4% in AUD terms if the dollar has moved from 0.67 to ~0.707 in the same period.

This is not a reason to sell. It’s a reason to be aware.

Australians investing in unhedged US equities accept FX risk as part of the deal. Historically, that FX exposure has been a net positive — the AUD tends to weaken against the USD during global risk-off events, precisely when US equities are most under pressure. The natural hedge works in your favour over the long run.

But during risk-on phases like the one we’re in right now — record market highs, strong earnings, easing geopolitical tensions — the AUD tends to strengthen, and that headwind is worth factoring into your performance benchmarking.

What to Watch This Week

• August CPI (US): The most important data release of the month. If inflation comes in hot, it will reignite rate-hike speculation and potentially trigger a pullback in rate-sensitive sectors.
• Continued Q2 earnings flow: The bulk of the S&P 500 has reported, but a few late reporters remain. Watch for any guidance revisions — companies are telling you what they see coming.
• Oil prices: The Iran situation remains a live risk. Oil above $90 per barrel would complicate the Fed’s inflation calculus and add pressure to consumer discretionary stocks.
• US 10-year Treasury yield: Watch for any move above 4.7–4.8%. That level has historically been where equity valuations start to feel genuine pressure, particularly in tech.

The Bottom Line

This was a week that confirmed two things. First, AI is generating real revenue at scale — not just for the hyperscalers, but for a growing number of companies. Second, the macro picture is not clean. A divided Fed, stubborn inflation, and a geopolitically volatile oil market mean the strong earnings backdrop is being offset by genuine macro risk.

For Australian investors, the playbook remains the same: hold quality, stay diversified, keep an eye on your AUD exposure, and don’t let a record-breaking week tempt you into paying elevated prices for companies that haven’t earned it.

The market made new highs this week. That doesn’t mean everything deserves to be bought at these levels.

Data Sources:

• S&P 500, Nasdaq and Dow weekly performance and closing levels: Reuters, Associated Press, Dow Jones Market Data / FactSet (week ending 7 August 2026)
• Palantir Q2 2026 results (revenue, EPS, US commercial growth, guidance): Palantir Technologies press release / SEC filing and company earnings materials
• S&P 500 blended Q2 2026 earnings growth (50.4% overall; ~32% excluding Alphabet and Amazon): FactSet Earnings Insight (as of 7 August 2026)
• Alphabet mark-to-market gains on SpaceX and Anthropic (~$98–99 billion): Alphabet Q2 2026 filings and contemporaneous reporting
• Federal Reserve July 2026 FOMC decision, 9-3 vote and named dissenters: Federal Reserve FOMC statement and post-meeting materials; contemporaneous reporting (CNBC, Reuters, New York Times)
• AUD/USD levels: Market data around 7 August 2026
• Non-farm payrolls (July 2026): US Labor Department release

Wall St. Down Under | Australia

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Disclaimer: Wall St. Down Under is an independent financial newsletter for informational and educational purposes only. Nothing published here constitutes financial advice, a recommendation to buy or sell any security, or a solicitation of any investment decision. Always do your own research and consult a licensed financial adviser before making investment decisions. Australian investors should consider their own financial situation, objectives, and risk tolerance. Past performance is not indicative of future results.