Alphabet and Tesla - Q2 earnings get serious

7월 23일

US stock index futures were mixed in early trade this morning. This followed a positive session across all the majors yesterday with strong gains for both the tech-heavy NASDAQ 100 (+1.6%) and the mid-cap, domestically-focused Russell 2000 (+1.7%). Investors will be relieved by the turnaround in fortunes following a general sell-off in the latter half of last week. This saw all the major indices give back a chunk of recent gains. As far as the NASDAQ was concerned, this took the index down to its lowest level so far this month. Prior to last week’s sell-off, there had been much talk over the rotation in equities which followed a better-than-expected CPI inflation report earlier in July. Investors rushed to take profits in the big techy market leaders, and reinvested the proceeds in many of the mid-cap constituents of the Russell 2000. Current discussions focus on whether that rotation is set to continue, as investors look forward to interest rate cuts, and seek out value away from the giant corporations which have driven market gains for so long. Of course, if the rotation were to continue, we should expect further declines in the mega caps, and more of a bounce in small caps. That isn’t what we’re currently seeing. Instead, it looks as if the stock market rally is broadening out. The pullback in tech proved to be a buying opportunity, and investors continue to push money into those long-neglected, and potentially undervalued, areas of the market. That could be a bullish signal. But it could also suggest an investing environment where money is thrown around with abandon, signalling that the bull market may be on its last legs. Where you sit on this could depend on whether you think this month’s sharp rally in regional banks is a rational response to an undervalued chunk of the market, or a reckless gamble. Tonight sees the release of earnings from Magnificent Seven members, Alphabet and Tesla. Comments, or a lack of them, over forward guidance may be key.