Robust consumer strength has been powering the equity rally this earnings season and demand for risky assets remains elevated albeit mounting macro concerns on trade, monetary policy and geopolitical fronts.
So far, about 12% of S&P500 companies have reported earnings and approximately 85% of these companies’ earnings results exceeded analysts’ EPS expectations.
Big banks made a banger opener at the start of the Q2 earnings season last week, and now big tech appears to be powering the rally, but overall momentum has evidently waned.
One reason is that traders are fixated upon the looming impact of trade negotiations of the United States with its counterparts, particularly with Japan and Europe, ahead of the August 1st deadline and how could those developments tarnish corporate resilience.
Another is the Federal Reserve’s outlook going forward and how long could firms survive without a scratch amidst a high-interest rate environment.
These two reasons alone are expected to cap investors’ optimism and add renewed pressure on markets, creating doubts about the sustainability of the record-breaking rally.
Concluding, with valuations already excessively stretched, investors now increasingly demand (and rightfully so) robust-enough operating returns, in order to outright justify today’s sky-high multiples and entice them to allocate more capital in markets that appears overextended.
Technical Analysis
NASDAQ Chart – Big tech keeps the rally alive, yet momentum wears out
Resistance: 23500 (R1), 24600 (R2), 26000 (R3)
Support: 22235 (S1), 20800 (S2), 19300 (S3)
