Strong Earnings Can't Stop Selloff; Tech Stocks Lead Decline
On July 25, 2026, U.S. major indexes closed mixed. The Dow Jones Industrial Average edged up 0.12%, the S&P 500 fell 0.35%, and the tech-heavy Nasdaq Composite plunged 1.82%. Despite tech giants like Apple, Amazon, Alphabet, and Meta Platforms reporting mostly better-than-expected quarterly results, the market responded with a selloff—classic 'buy the rumor, sell the fact' played out again.
Specifically, Apple's latest quarterly revenue rose 8% YoY to $105 billion, well above the expected $102 billion; Amazon's AWS cloud revenue growth accelerated to 22%, and it raised its full-year capex guidance; Meta's ad revenue grew 15% with EPS beating estimates. However, after these positive data were released, the average drop of these stocks was 3.5%. Analysts noted that prices had already rallied significantly before earnings, fully pricing in the good news, leading to profit-taking after the reports.
Initial Jobless Claims Unexpectedly Rise, Fueling Growth Slowdown Fears
On the same day, the U.S. Labor Department reported initial jobless claims for the week ending July 20 at 248,000, above the expected 235,000, and continuing claims rose to 1.82 million, the highest since November 2024. This data heightened concerns about a cooling labor market and economic slowdown. Despite strong corporate earnings, the weak macro signals prompted investors to adjust risk appetite, shifting from high-valuation tech stocks to more defensive sectors.
Meanwhile, the U.S. 10-year Treasury yield fell to 4.12%, down 6 bps on the day, reflecting a flight to safety into bonds. The dollar index edged lower to 97.8. In commodities, Brent crude oil fell 2.3% to $78 per barrel, mainly due to signs of easing tensions in the Middle East.
Capital Rotates to Defensive Sectors; Utilities and Healthcare in Demand
Fund rotation was evident. On the day, the S&P 500 utilities sector rose 1.8%, healthcare gained 1.2%, and consumer staples added 0.9%. Meanwhile, information technology fell 2.6% and consumer discretionary dropped 1.9%. This indicates investors are reducing exposure to economically sensitive assets and embracing defensive stocks with stable cash flows and earnings certainty.
In individual stocks:
- American Electric Power rose 2.3% to a record high.
- Johnson & Johnson gained 1.5%, boosted by news of its latest drug pipeline approval.
- Procter & Gamble added 0.8%, benefiting from resilient demand for household consumer goods.
Analyst Insight: Short-Term Gambles vs. Long-Term Logic in Earnings Season
JPMorgan's chief equity strategist said: 'Earnings themselves are not bad, but the market had already priced in the good news. The key now is macro uncertainty—inflation is falling but still above target, the labor market is softening, and corporate guidance is turning cautious. Hence, money is flowing out of tech leaders into assets with higher safety margins.' He advised investors to focus on quality defensive sectors like utilities, healthcare, and consumer staples, while watching consumer credit data for signals on economic health.
Goldman Sachs noted that the structural divergence this earnings season is noteworthy: AI-related companies' capex plans have increased sharply but have not yet generated symmetric revenue growth, potentially squeezing future margins. 'We see some tech companies investing heavily for long-term growth, but market patience is limited. Once quarterly results show any flaw, selling pressure will be enormous.' Goldman maintains a 'neutral' rating on U.S. stocks overall, expecting the S&P 500 to trade in a range in the second half, with earnings growth further driving stock divergence.
Outlook: Focus on Fed Decision and Inflation Data
Looking ahead to the coming week, market focus will shift to the Fed's July rate decision, the advance Q2 GDP, and the June core PCE price index. Currently, Fed funds futures show an 87% probability of the Fed holding rates steady and a 13% chance of a 25 bps cut. If economic data weakens further, rate-cut expectations could rise, which would help U.S. equity valuations. But in the near term, the trend of money moving from tech to defensive sectors may continue, especially as August enters a typical earnings lull, when markets rely more on themes and events.
For investors, current strategy should remain flexible. On one hand, tech stocks' long-term growth story remains intact, but short-term valuations and sentiment need to be digested. On the other hand, defensive sectors offer attractive value and can serve as portfolio ballast. Additionally, investors may consider oversold rebound opportunities in energy due to oil price declines, and small-cap stocks' valuation recovery potential after interest rates stabilize.
Overall, the market action on July 25, 2026 revealed a classic earnings season pattern: good earnings but falling stock prices, as capital seeks certainty amid macro fog. This signal deserves investors' close attention to position ahead of the next rotation.
