U.S. Job Market Cool-Off and Strong Earnings Provide Dual Boost: Fidelity and Franklin Templeton Endorse Long-Term AI Gains

Global financial markets have recently shown a volatile yet generally bullish trend. Institutional analysts point out that exceptionally strong Q2 earnings from U.S. companies, combined with signs of cooling in the U.S. labor market, have significantly eased market concerns over near-term rate hikes by the Federal Reserve. This dual dynamic has become the key driver supporting the rebound in U.S. equities and global risk assets. Although geopolitical tensions in the Middle East and the high-interest-rate environment continue to create market volatility, Fidelity International and Franklin Templeton Investment Advisory agree that the global economy and corporate earnings fundamentals demonstrate strong resilience. The AI wave is transitioning from speculative momentum to tangible, predictable profit growth, with long-term benefits expected.

Recent market dynamics show that U.S. non-farm payrolls unexpectedly declined by 23,000 in July, with combined downward revisions of 103,000 for the previous two months. This has significantly reduced market bets on short-term rate hikes, leading to lower U.S. Treasury yields and a weaker dollar. At the same time, progress in Middle East peace talks has eased immediate inflationary pressures from oil prices, providing strong support for the four major U.S. stock indices and international markets.

Fidelity International notes that market sentiment has shifted from inflation concerns to a more favorable combination of 'labor market cooling allowing central banks to remain patient' and 'resilient corporate earnings.' Franklin Templeton emphasizes that the risk of a U.S. recession is extremely low, consumer spending remains healthy, and accelerating corporate earnings are the primary driver behind the continued strength of U.S. equities.

Corporate earnings have emerged as the standout feature of the current market. Statistics show that nearly 90% of S&P 500 constituents have reported earnings, with nearly 80% exceeding profit expectations. The average year-on-year earnings growth far surpasses initial quarterly forecasts, reflecting strong operational resilience in corporate fundamentals.

Fidelity International observes that the breadth of earnings improvement has widened further, with 81% of index components showing positive growth—indicating that momentum is not limited to a few large tech giants.

Franklin's equity team highlights that beyond tech and energy sectors, industries less affected by geopolitical risks—such as communications services, financials, industrials, and biotech—also show healthy earnings growth.

In terms of investment themes, AI remains the core driver attracting global capital. Fidelity notes that AI investment is expanding beyond core tech into infrastructure, advanced manufacturing, and select financial sectors. The investment rationale is increasingly shifting from thematic speculation to companies with clear profit support.

Franklin Templeton analyzes that the pace of AI capital expenditure is far faster than previous waves such as mobile devices and cloud computing. Major players are already seeing return on investment (ROI). As AI model usage costs continue to decline, the 'Jevons Paradox' is expected to trigger a surge in usage, spreading investment enthusiasm across broader economic sectors.

Looking ahead, Fidelity International recommends focusing on high-quality stocks with solid fundamentals, complemented by global dividend strategies and quality bonds. Active management and selective positioning are advised to balance risks amid increasing regional divergence and the potential for prolonged high interest rates.

Franklin Templeton believes that with strong fundamentals and robust AI-driven capital spending, U.S. equities have solid downside support. Capital is gradually rotating from single high-flying stocks into cyclical sectors such as industrials, financials, consumer, and small-to-mid caps—indicating a healthy market rotation. Investors are advised to adopt a diversified strategy to fully capture the ongoing bull market benefits.