For the week, U.S. equities secured a second consecutive weekly gain. The S&P 500 traded near 7,700, driven by a combination of resilient corporate earnings and economic data that reinforced current expectations about monetary policy.

The S&P SmallCap 600 continued its notable leadership trend relative to broader large-cap benchmarks. On a year-to-date basis through early August 2026, small-cap equities returned approximately 20%, roughly double the ~10% YTD gain of the S&P 500. Over the trailing twelve months, small-cap stocks narrowed their historical valuation gap as broader participation beyond mega-cap tech continued to expand to other domestic economic sectors, driving a 21.1% gain for the S&P 500. During the week, small caps maintained their solid footing as lower yield pressures provided relief to smaller, floating-rate-debt-sensitive businesses.

Macroeconomic Drivers & Key Economic Releases

The centerpiece economic release on Friday, August 7, 2026, indicated a cooling labor market. The softer job growth figures bolstered market sentiment by cementing expectations that the Federal Reserve will keep benchmark interest rates steady rather than imposing further tightening. Yields on 10-year Treasury notes moderated after reaching multi-month highs near 4.73% in late July. The stabilization in yields eased borrowing cost concerns for both corporate issuers and equity valuations. S&P 500 Q2 blended earnings growth reached an extraordinary ~47% year-over-year, with 86% of reporting companies exceeding EPS estimates.

Key Sector Moves & Market Movers

Big tech earnings remained a central driver. Reaffirmation of strong cloud growth—led by Microsoft (+16% weekly post-earnings) and Amazon (+15%)—justified elevated capital expenditures in AI infrastructure. Conversely, hardware storage producer Western Digital (WDC) fell over 5% following mixed market reactions to its quarterly reporting.

Airbnb (ABNB) surged nearly 16% to four-year highs after delivering stronger-than-expected Q2 revenue and lifting full-year guidance on robust international travel demand.

Solar equities gained traction during the week following new U.S. tariff announcements on Chinese polysilicon products.

What Are Investors Thinking?

It seems clear that investors are looking for a "soft landing" trajectory for the economy. The primary question is whether softening employment data will allow the Fed to transition toward rate cuts without triggering a broader macroeconomic contraction. Market players right now are balancing historically high quarterly earnings growth against robust valuation multiples with the S&P 500 forward P/E around 19.6x. So far, earnings have supported the high valuations.

Long-term, attention still centers around return on investment (ROI) from massive artificial intelligence infrastructure spending. Investors are also watching and waiting to see whether small-cap leadership can persist over a multi-year horizon as broader earnings participation takes hold across U.S. industries.

In the SmallCap Informer

The most notable mover in our coverage list is our newest selection, Pro-Dex (PDEX), introduced in the August 2026 issue. The microcap surged 16.0% in the week after publication. Other notable movers on the SmallCap Informer coverage list were:

• Fabrinet (FN) +25.1%
• UFP Technologies (UFPT) +21.5%
• Five Below (FIVE) +17.4%
• Royal Gold (RGLD) +17.2%

Stay the course!

— DOUG GERLACH, EDITOR-IN-CHIEF

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