The closed the week at 6,388.64, notching one other contemporary document excessive and increasing one of many longest weekly successful streaks prior to now three years. This persistent rally has been fueled by a potent mixture of robust earnings from tech bellwethers, rising expectations of Fed price cuts later this 12 months, and an abundance of investor liquidity chasing momentum.
To date, 87% of firms reporting via Thursday had beat expectations, primarily in Industrials, Financials, Healthcare, and Expertise.
Bullish sentiment has been bolstered 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 beneath 15, and document speculative exercise in short-dated choices (0DTE) recommend a market more and more pushed by sentiment somewhat than fundamentals.
Nonetheless, this surge in optimism comes with dangers. Notably, valuations, whereas a horrible timing indicator, have surged to earlier highs during the last 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 for the reason that World Monetary Disaster. Every of those assessments, 2011, 2016, 2018, 2020, and 2022, has marked a essential turning level the place the long-term bullish development 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 wherein this retest occurred. April’s drawdown shook investor confidence amid issues about inflation stickiness and a delayed Fed pivot. However regardless of macro headwinds, the market discovered robust technical assist, and breadth improved modestly into the summer time rally.
The month-to-month RSI has moved again into overbought territory, at present at 71.5. Whereas not but at ranges that triggered prior main reversals, like in 2021 or early 2018, it does recommend restricted upside with out a pause or consolidation section. 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, however it suggests the ascent price might sluggish, particularly as sentiment gauges flash complacency and speculative buying and selling (comparable to 0DTE choices and meme shares) picks up once more.
This isn’t a timing instrument. Month-to-month indicators transfer slowly, however the message is evident: the development continues to be up, however dangers are constructing underneath the floor. Consider it like driving your automotive. All the things is okay, however the gasoline gauge is nearing “E.” You possibly can hold 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 essential catalysts might affect market course and both reinforce the bullish development or set off a near-term reversal. Right here’s what traders ought to be watching carefully:
FOMC Coverage Assertion (Wednesday) – The Fed will launch its newest price resolution and coverage steering. Whereas no change is predicted, markets will scrutinize Jerome Powell’s tone for clues on future price cuts. A dovish shift might prolong the rally, whereas hawkish language might rattle sentiment.
Core PCE Inflation Report (Thursday) – This launch will likely be essential because the Fed’s most popular inflation measure. A softer-than-expected quantity would reinforce disinflation tendencies and assist the case for alleviating. A warmer print might delay the Fed pivot and strain 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 positive aspects, however any disappointment—significantly in ahead steering—might spark rotation or pullback.
Finish-of-Month Rebalancing – Institutional portfolio changes might introduce volatility, particularly with main indexes prolonged. Count on potential profit-taking or hedging exercise as managers lock in positive aspects from July’s rally.
Technical Setup – The S&P 500 is buying and selling properly above key shifting averages, and RSI stays in overbought territory. That doesn’t imply an instantaneous reversal, however any unfavourable shock might set off a short-term correction.
General Danger Outlook: Danger ranges stay elevated. Whereas earnings and disinflation are supportive, stretched valuations and technical exhaustion argue for extra defensive positioning within the quick time period.
Retail Knowledge Sends A Warning
The most recent retail knowledge on shopper spending confirmed a better-than-expected improve final month. As Yahoo Finance famous:
“I’m looking for 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 might not have discovered any indicators of “rot” with the patron, 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 for the reason that 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’d name a “robust report.”
Nonetheless, the weakening of retail knowledge relating to the market raises issues, on condition that company earnings come from shopper spending. For those who have a look at an earnings assertion, income is the highest line, and “earnings” or “internet earnings” is the underside line.
An organization should promote a services or products to clients to generate income. The fundamental diagram beneath exhibits an organization’s income cycle. Due to this fact, to know what to anticipate when it comes to future, or ahead, earnings with some extent of accuracy, we should perceive the course of shopper spending.
One of many higher measures for creating a framework for future earnings progress is (PCE), since they comprise almost 70% of the financial equation. (Notably, knowledge includes about 40% of PCE.) The annual proportion change in ahead earnings tracks the yearly proportion change in pretty carefully.
For you “knowledge geeks,” the correlation between the 2 measures is barely greater than 51%, so the correlation isn’t insignificant. You’ll discover that the outliers have principally been current anomalies attributable to the COVID lockdown and subsequent fiscal and financial interventions.
Due to this fact, whereas unsurprising, the power 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 major menace to the market.
Finally, 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 patron.
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 faux, Wall Road Journal article courtesy of The Weekly Commonplace again in 1998. In 2025, one thing related may very well be mentioned concerning the market’s efficiency for a lot of the 12 months.”
The index is up 8.62% YTD and 28% for the reason that April low, one among its quickest advances ever. That is regardless of the specter of “tariffs,” weaker financial progress, 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 concerning the extra hypothesis ranges . In fact, in the midst of a market frenzy, nobody desires to listen to the phrases of warning because the “music continues to be enjoying and everyone seems to be dancing.”
Nonetheless, these events remind us of our contrarian roots in managing cash. Additional indicators of extra appeared this previous week, that are price sharing with you.
The primary got here from Goldman Sachs, noting:
“The US Information Tech sector now accounts for ~34% of the S&P 500, as measured by market cap, matching the document weight that the sector loved again in ‘99/’00. In complete, the subsector boasts a market cap of ~$18.5trn – this subsector market cap dimension alone is bigger than the complete market cap of each nation exterior of the U.S. “
Take into consideration the magnitude of that assertion for a second. Extra importantly, take into account the influence of a reversal within the tech sector, if it ought to happen, on the remainder of the market. Danger and focus are superb companions throughout a rising bull market, however will “throw you in entrance of the prepare” when the correction begins.
Including to the focus concern is the “excessive beta” chase by retail traders as famous by JP Morgan.
“The most recent bout of utmost crowding, at present within the one hundredth percentile, is in high-beta shares. This spans each riskier low-value and speculative progress performs. Additionally it is the quickest tempo in 30-years.”
Crowding into high-beta names is a part of the “risk-on “ setting. As famous in “” we noticed related 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 known 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 methods. 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 essential to drive markets greater, 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 beneath its 20 DMA, the second-longest streak in its historical past (again to 1985). The longest was resulted in early 1999.”
The earlier document lasted for 77 straight classes and resulted in February 1999. Throughout the present streak, the has rallied +23%. By comparability, the Nasdaq gained over 50% in the course of the 1999 document stretch. In the meantime, the S&P 500 has gone 18 buying and selling classes with out 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. Nonetheless, it ought to present traders with some perception into the present stage of exuberance out there. As is at all times the case, if “everyone seems to be shopping for,” you ultimately run out of consumers.
Be Cautious The place You Are Sitting
The present setting could be very very similar to a crowded theater. All the things is okay till somebody yells, “Fireplace.” 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.”
“In some unspecified time in the future, 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 somewhat a stampede with little regard to cost, valuation n or elementary measures. The exit will turn into very slender.
Importantly, as costs decline, it should set off margin calls, which can induce extra indiscriminate promoting. The pressured redemption cycle will trigger catastrophic spreads between the present bid and ask pricing for ETF’s. Such forces traders to dump positions to fulfill margin calls, the dearth of consumers will type a vacuum inflicting speedy 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 “fireplace” within the theatre.
For this reason we’re sitting nearer to the exit.
Retail traders have once more crowded into the identical theater, believing asset costs can solely improve. As we have now seen, quite a few issues might spark a “fireplace.”
Portfolio Ways
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 setting 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 hot button is participation with self-discipline.
Right here’s the right way to have interaction with out overexposing your portfolio to pointless threat:
Preserve a High quality Core: Anchor your portfolio with high-conviction positions in firms with robust stability sheets, constant free money circulation, 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 lined calls on overbought positions to reap premium, and take into account protecting put spreads on indices like SPY or QQQ to buffer in opposition to sudden drawdowns.
Tighten Danger Controls: Reassess trailing stops or revenue targets on positions which have run sharply greater. Locking in positive aspects isn’t market timing — it’s threat administration.
Elevate Tactical Money: A ten–20% money place offers 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 power to trim and rebalance into extra cheap valuations and steady progress.
The objective right here isn’t to keep away from the celebration — 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, threat indicators, and market internals
Market & Sector X-Ray: Overbought
The market rallied each day this previous week, pushing a lot of the market sectors again into very overbought territory. As famous within the relative efficiency part beneath and confirmed on this evaluation, Expertise, Industrials, and the index at the moment are flashing short-term warnings. Take income and lift money ranges in portfolios to hedge for what may very well be a extra sloppy August.
Technical Composite: 92.40 – Very Overbought, Danger 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 threat urge for food pulled again barely this week however stay in greed territory. The unfavourable divergence (market rising, as positioning declines) means that consumers are retreating, which is an honest setup for a short-term correction. Take income. 
Relative Sector Efficiency
Vitality, Staples, and Discretionary underperformed probably the most this week as traders continued to chase Transports, Industrials, and Expertise. With the leaders in additional excessive overbought territory, the setup for a rotation into defensive positioning is constructing.
Most Oversold Sectors
Vitality is at present 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 probably the most oversold within the group, whereas ConocoPhillips (NYSE:) and Chevron (NYSE:) are buying and selling near honest worth.
Sector Mannequin & Danger 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.
Nonetheless, with that acknowledged, the danger of a 5% pullback to reverse the short-term overbought situations is growing. The S&P index, supplies, industrials, utilities, transportation, mid-caps, and gold miners are buying and selling properly above their month-to-month threat ranges, suggesting traders ought to take some income.
Watch & Pay attention
On this video, Lance Roberts discusses how margin debt and overbought situations are the components for a correction, however the catalyst is what’s lacking.
