The closed the week at 6,388.64, notching one other recent report excessive and increasing one of many longest weekly successful streaks previously three years. This persistent rally has been fueled by a potent mixture of sturdy earnings from tech bellwethers, rising expectations of Fed charge cuts later this yr, and an abundance of investor liquidity chasing momentum.
Thus far, 87% of firms reporting by way of Thursday had beat expectations, primarily in Industrials, Financials, Healthcare, and Know-how.
Bullish sentiment has been strengthened by a perception that inflation is lastly cooling with out considerably denting company profitability. Mega-cap tech and AI-related names stay key drivers, with earnings surprises and steering upgrades boosting confidence. As well as, falling volatility, mirrored within the declining under 15, and report speculative exercise in short-dated choices (0DTE) counsel a market more and more pushed by sentiment moderately than fundamentals.
Nevertheless, this surge in optimism comes with dangers. Notably, valuations, whereas a horrible timing indicator, have surged to earlier highs over the past month as costs are growing sooner than earnings. As is at all times the case, traders typically overlook valuations, however valuations inform us a lot about sentiment and expectations.
Technical Backdrop
I reviewed some charts yesterday morning, and this one stood out. The ~20% correction in April was the seventh profitable retest of the 36-month shifting common because the International Monetary Disaster. Every of those exams, 2011, 2016, 2018, 2020, and 2022, has marked a crucial turning level the place the long-term bullish pattern was defended. This constant conduct means that the secular bull market stays intact, with long-term traders nonetheless stepping in throughout main pullbacks.
What’s significantly necessary is the context through which this retest occurred. April’s drawdown shook investor confidence amid considerations about inflation stickiness and a delayed Fed pivot. However regardless of macro headwinds, the market discovered sturdy technical assist, and breadth improved modestly into the summer time rally.
The month-to-month RSI has moved again into overbought territory, at the moment at 71.5. Whereas not but at ranges that triggered prior main reversals, like in 2021 or early 2018, it does counsel restricted upside and not using a pause or consolidation part. In the meantime, the MACD stays in bullish territory however is beginning to flatten, indicating waning momentum. That doesn’t imply the bull market is over, nevertheless it suggests the ascent charge might sluggish, particularly as sentiment gauges flash complacency and speculative buying and selling (reminiscent of 0DTE choices and meme shares) picks up once more.
This isn’t a timing device. Month-to-month indicators transfer slowly, however the message is evident: the pattern remains to be up, however dangers are constructing beneath the floor. Consider it like driving your automobile. All the pieces is ok, however the fuel gauge is nearing “E.” You possibly can preserve going, however you’d higher have an exit plan mapped out.
Key Catalysts This Week
As we transfer into the ultimate buying and selling days of July, a number of crucial catalysts might affect market course and both reinforce the bullish pattern or set off a near-term reversal. Right here’s what traders must be watching carefully:
- FOMC Coverage Assertion (Wednesday) – The Fed will launch its newest charge determination and coverage steering. Whereas no change is predicted, markets will scrutinize Jerome Powell’s tone for clues on future charge cuts. A dovish shift might lengthen the rally, whereas hawkish language could rattle sentiment.
- Core PCE Inflation Report (Thursday) – This launch will probably be crucial because the Fed’s most well-liked inflation measure. A softer-than-expected quantity would reinforce disinflation traits and assist the case for alleviating. A warmer print might delay the Fed pivot and stress high-multiple shares.
- Mega-Cap Tech Earnings – Heavyweights together with Apple (NASDAQ:), Amazon (NASDAQ:), and Google (NASDAQ:) will report. With stretched valuations, the bar is excessive. Sturdy outcomes might gasoline additional good points, however any disappointment—significantly in ahead steering—could spark rotation or pullback.
- Finish-of-Month Rebalancing – Institutional portfolio changes might introduce volatility, particularly with main indexes prolonged. Count on doable profit-taking or hedging exercise as managers lock in good points from July’s rally.
- Technical Setup – The S&P 500 is buying and selling nicely above key shifting averages, and RSI stays in overbought territory. That doesn’t imply a direct reversal, however any adverse shock might set off a short-term correction.
Total Threat Outlook: Threat ranges stay elevated. Whereas earnings and disinflation are supportive, stretched valuations and technical exhaustion argue for extra defensive positioning within the brief time period.
Retail Knowledge Sends A Warning
The newest retail knowledge on shopper spending confirmed a better-than-expected enhance final month. As Yahoo Finance famous:
“I’m attempting to find indicators of “shopper rot” to assist a view that the inventory market has gotten forward of itself. I haven’t discovered any, serving to to clarify why shares are at information. As goes the US shopper, so goes the economic system and the inventory market! Or so I used to be advised by my former boss 20 years in the past throughout an workplace all-nighter.”
Whereas Yahoo could not have discovered any indicators of “rot” with the buyer, it’s there if you wish to look. The current retail knowledge confirmed a rise of 0.6% on a nominal foundation, however actual, inflation-adjusted retail gross sales knowledge have remained flat because the stimulus-induced spending frenzy in 2021. Notably, earlier durations of stagnant retail gross sales occurred earlier than or throughout recessionary durations.
Moreover, the current retail knowledge report on a month-over-month change is way from what I might name a “sturdy report.”
Nevertheless, the weakening of retail knowledge concerning the market raises considerations, on condition that company earnings come from shopper spending. Should you take a look at an revenue assertion, income is the highest line, and “earnings” or “internet revenue” is the underside line.
An organization should promote a services or products to prospects to generate income. The essential diagram under reveals an organization’s income cycle. Due to this fact, to know what to anticipate when it comes to future, or ahead, earnings with a point of accuracy, we should perceive the course of shopper spending.
One of many higher measures for growing a framework for future earnings development is (PCE), since they comprise almost 70% of the financial equation. (Notably, knowledge contains about 40% of PCE.) The annual share change in ahead earnings tracks the yearly share change in pretty carefully.
For you “knowledge geeks,” the correlation between the 2 measures is barely greater than 51%, so the correlation shouldn’t be insignificant. You’ll discover that the outliers have largely been current anomalies attributable to the COVID lockdown and subsequent fiscal and financial interventions.
Due to this fact, whereas unsurprising, the energy of shopper spending has a lot to do with the expectation for ahead earnings. Given the “rot” within the retail knowledge, a discount in shopper spending might pose a big risk to the market.
In the end, long-term funding success will rely not on hopeful forecasts however on a clear-eyed understanding of what fuels company profitability, and that gasoline stays the buyer.
Extra Indicators Of Extra Bullishness
Spencer Jakab wrote a superb piece for the WSJ this week.
“’The market rallied early this morning for causes no person understands and no person predicted.’ Thus started an excellent, however pretend, Wall Avenue Journal article courtesy of The Weekly Commonplace again in 1998. In 2025, one thing comparable could possibly be mentioned in regards to the market’s efficiency for a lot of the yr.”
The index is up 8.62% YTD and 28% because the April low, one in all its quickest advances ever. That is regardless of the specter of “tariffs,” weaker financial development, excessive , cussed , and a reversal in financial liquidity.
As Spencer famous, shares are rallying, however nobody understands why.
However therein is why we stay vigilant in regards to the extra hypothesis ranges . In fact, in the course of a market frenzy, nobody needs to listen to the phrases of warning because the “music remains to be enjoying and everyone seems to be dancing.”
Nevertheless, these events remind us of our contrarian roots in managing cash. Additional indicators of extra appeared this previous week, that are value sharing with you.
The primary got here from Goldman Sachs, noting:
“The US Data Tech sector now accounts for ~34% of the S&P 500, as measured by market cap, matching the report weight that the sector loved again in ‘99/’00. In complete, the subsector boasts a market cap of ~$18.5trn – this subsector market cap measurement alone is bigger than your complete market cap of each nation outdoors of the U.S. “
Take into consideration the magnitude of that assertion for a second. Extra importantly, think about the affect of a reversal within the tech sector, if it ought to happen, on the remainder of the market. Threat and focus are effective companions throughout a rising bull market, however will “throw you in entrance of the prepare” when the correction begins.
Including to the focus challenge is the “excessive beta” chase by retail traders as famous by JP Morgan.
“The newest bout of utmost crowding, at the moment within the a hundredth percentile, is in high-beta shares. This spans each riskier low-value and speculative development performs. It’s also the quickest tempo in 30-years.”
Crowding into high-beta names is a part of the “risk-on “ atmosphere. As famous in “” we noticed comparable investor and media conduct in the course of the MoMo meltup in 2021.
“CNBC is launching a brand new index specializing in youthful individuals, youthful employees, and youthful traders. It’s referred to as the CNBC Subsequent Era 50 index. The index will observe 50 equal-weighted shares integral to lives and careers of millennials and people from Era Z.” – CNBC
Why is that necessary?
Monetary historical past is suffering from the stays of concepts that marked the peaks and troughs of markets over time. From journal covers to the world’s tallest skyscrapers to new funding merchandise and techniques. Most proved to be the results of the psychology at the moment, whether or not it was extreme bullishness or overwhelming worry.
That article was written on December thirteenth, 2021, only one month earlier than the market peaked.
In fact, extreme bullish bias is crucial to drive markets larger, however “bushes cannot develop to the sky.” As BTIG’s Jonathan Krinsky famous:
“The has now gone 60 buying and selling days with out closing under its 20 DMA, the second-longest streak in its historical past (again to 1985). The longest was led to early 1999.”
The earlier report lasted for 77 straight periods and led to February 1999. In the course of the present streak, the has rallied +23%. By comparability, the Nasdaq gained over 50% in the course of the 1999 report stretch. In the meantime, the S&P 500 has gone 18 buying and selling periods and not using a 1% up or down day, the longest streak since December 2024. Sure, the markets are certainly very bullish.
Critically, none of this means the market will crash tomorrow. Nevertheless, it ought to present traders with some perception into the present stage of exuberance available in the market. As is at all times the case, if “everyone seems to be shopping for,” you ultimately run out of patrons.
Be Cautious The place You Are Sitting
The present atmosphere could be very very similar to a crowded theater. All the pieces is ok till somebody yells, “Hearth.” At that time, everybody tries to hurry in direction of a really slender exit. The identical holds for the market.
We mentioned this level in 2017 in “Rise Of The Robots.”
“Sooner or later, that reversion course of will take maintain. It’s then investor ‘psychology’ will collide with ‘margin debt’ and ETF liquidity.
When the ‘robotic buying and selling algorithms’ start to reverse, it won’t be a sluggish and methodical course of however moderately a stampede with little regard to cost, valuation n or elementary measures. The exit will develop into very slender.
Importantly, as costs decline, it is going to set off margin calls, which is able to induce extra indiscriminate promoting. The compelled redemption cycle will trigger catastrophic spreads between the present bid and ask pricing for ETF’s. Such forces traders to dump positions to satisfy margin calls, the dearth of patrons will kind a vacuum inflicting fast value declines. Such leaves traders helpless on the sidelines watching capital appreciation vanish in moments.”
Nobody believed me then, and the decision was early. However in 2020, somebody yelled “hearth” within the theatre.
That is why we’re sitting nearer to the exit.
Retail traders have once more crowded into the identical theater, believing asset costs can solely enhance. As we have now seen, quite a few issues might spark a “hearth.”
Portfolio Techniques
The return of meme-stock euphoria is a stark reminder that complacency is once more gripping markets. Whether or not it’s zero-day choices, surging penny shares, or speculative AI performs with no earnings, the present atmosphere mirrors the extreme risk-taking seen in early 2021. Retail traders are chasing high-beta trades, whereas volatility stays suppressed and fairness indices hover close to all-time highs. This mixture creates a seductive however harmful backdrop for capital deployment.
The secret’s participation with self-discipline.
Right here’s easy methods to have interaction with out overexposing your portfolio to pointless danger:
- Keep a High quality Core: Anchor your portfolio with high-conviction positions in firms with sturdy stability sheets, constant free money stream, and sturdy earnings. These names will maintain up finest when sentiment shifts.
- Restrict Speculative Publicity: Allocate not more than 5–10% of your portfolio to high-beta or momentum-driven trades. Consider this as your “tactical sleeve,” not your funding basis.
- Use Choices Strategically: Deploy coated calls on overbought positions to reap premium, and think about protecting put spreads on indices like SPY or QQQ to buffer towards sudden drawdowns.
- Tighten Threat Controls: Reassess trailing stops or revenue targets on positions which have run sharply larger. Locking in good points shouldn’t be market timing — it’s danger administration.
- Increase Tactical Money: A ten–20% money place supplies flexibility for higher entry factors when volatility inevitably returns. Dry powder is a technique, not a missed alternative.
- Monitor Sentiment Extremes: Use positioning knowledge, put/name ratios, and VIX time period construction to gauge crowd conduct. When hypothesis reaches a fever pitch, it typically pays to do much less, no more.
- Don’t Chase, Rebalance: If particular sectors have dramatically outperformed (like AI or micro-cap tech), use energy to trim and rebalance into extra cheap valuations and secure development.
The purpose right here isn’t to keep away from the social gathering — it’s to make sure you’re close to the exit when the music stops.
Commerce accordingly.
Market Statistics & Evaluation
Weekly technical overview throughout key sectors, danger indicators, and market internals
Market & Sector X-Ray: Overbought
The market rallied day-after-day this previous week, pushing many of the market sectors again into very overbought territory. As famous within the relative efficiency part under and confirmed on this evaluation, Know-how, Industrials, and the index at the moment are flashing short-term warnings. Take earnings and lift money ranges in portfolios to hedge for what could possibly be a extra sloppy August.
Technical Composite: 92.40 – Very Overbought, Threat Rising
Markets are pushing into extra overbought territory, and pullbacks to assist are possible.
Concern/Greed Index: 76.40 – Greed
Regardless of the market rally, investor psychology and danger urge for food pulled again barely this week however stay in greed territory. The adverse divergence (market rising, as positioning declines) means that patrons are retreating, which is a good setup for a short-term correction. Take earnings. 
Relative Sector Efficiency
Power, Staples, and Discretionary underperformed essentially the most this week as traders continued to chase Transports, Industrials, and Know-how. With the leaders in additional excessive overbought territory, the setup for a rotation into defensive positioning is constructing.
Most Oversold Sectors
Power is at the moment the market’s most oversold sector, which might catch inflows from a risk-off rotation. Kinder Morgan (NYSE:), EOG Assets (NYSE:), and Exxon Mobil (NYSE:) are essentially the most oversold within the group, whereas ConocoPhillips (NYSE:) and Chevron (NYSE:) are buying and selling near honest worth.
Sector Mannequin & Threat Ranges
During the last week, the bullish market motion reversed extra of the bearish weekly shifting common crossovers, growing the variety of bullish alerts to 17 from 15. The excellent news is that continued technical enchancment is lowering the danger of a extra extreme market correction within the months forward, because the technical construction of the market improves.
Nevertheless, with that said, the danger of a 5% pullback to reverse the short-term overbought circumstances is growing. The S&P index, supplies, industrials, utilities, transportation, mid-caps, and gold miners are buying and selling nicely above their month-to-month danger ranges, suggesting traders ought to take some earnings.
Watch & Hear
On this video, Lance Roberts discusses how margin debt and overbought circumstances are the substances for a correction, however the catalyst is what’s lacking.
