More all-time stock highs amid earnings optimism
Updated Updated Mon, 2025 July 21 08:55
* EU to ramp up retaliation plans as UAS tariff deal prospects dim
* S&P 500, Nasdaq hit record highs as megacaps gain
* Russia and Ukraine edge closer to first talks in seven weeks
* 10-year Treasury yield falls as investors weigh state of the US economy
FX: USD suffered its worst day in a month as the 50-day SMA at 98.63 acted as resistance again. It’s a quiet US data week and Fed officials are now in the blackout period ahead of next week’s FOMC meeting, and also non-farm payrolls data. There is currently around a 60% chance of a 25bps September rate cut, but very little probability of a move next week. Fed Governor Waller late last week was still advocating a reduction next Wednesday, but he is very much in the minority with Bowman.
EUR picked up, after stabilising last week around 1.16. Focus remains on the trade front with Bloomberg reporting that EU envoys are set to meet as early as this week to formalise a retaliation plan in the event of a possible no-deal scenario with the US. But US Commerce Secretary Lutnick said he is confident they will get a deal done. Thursday could be lively with PMIs and the ECB meeting, though no rate change is expected as policymakers sit on their hands and see how trade talks pan out.
GBP outperformed most of its peers as markets priced out some of the BoE easing see in this year. An August 25bps cut is still favoured but there is now less than 50bps in total for 2025. Cable bounced off the support zone at a minor Fib level of this year’s rally at 1.3386 and a prior long-term cycle high at 1.3434.
JPY outperformed after PM Ishiba pledged to stay on as PM for now, despite losing the upper house majority. But major uncertainty lies ahead – will he step down, will the opposition parties take advantage by pushing for tax cuts, even though they are deeply splintered, will the LDP have to offer concessions? Of course, looming over this is the US trade talks. A clearer read may emerge when Japanese financial markets reopen after the Marine Day public holiday.
AUD continued its bounce off the 50-day SMA at 0.6495. Focus is on today’s RBA minutes after its surprise hold on July 8. Key could be defining “a little more information” on inflation progress, though that may come on July 29 when Q2 data is released. Recent disappointing back-to-back jobs reports since the decision have likely made the minutes a little stale. NZD underperformed after Q2 CPI came in softer than expected at 0.5% vs 0.6%. Tradeable goods CPI printed two-tenth lower than forecast at 0.3%. August rate cut bets increased by roughly 5bps to 21bps.
US stocks: The S&P 500 printed up 0.14% at 6,305, another fresh record closing high and its tenth of the year. But prices closed near the lows of the day. The Nasdaq settled higher, also at an all-time top, by 0.50% at 23,180. The Dow Jones finished down at 44,323, losing 0.04%. Sectors were mostly in the green, with Communication Services and Consumer Discretionary leading the gainers, and Energy the weakest group with Health, Industrials and Financials also in the red. Alphabet was up 2.8% giving the S&P 500 its biggest boost. Tesla was down by 0.35% and along with Nvidia, which was 0.60% lower. So far, 62 S&P 500 companies have reported, with more than 85% surpassing expectations, according to FactSet. Verizon beat EPS and revenue expectations and raised their full-year outlook.
Asian stocks: Futures are mixed. APAC equities were mostly positive after the upper house Japan election and a Japanese market holiday. The ASX200 pulled back from fresh highs on underperformance in financials. The Shanghai Comp and Hang Seng were supported by tech and energy strength. Media reported that President Trump and Xi could meet ahead of or during the October APEC meeting.
Gold jumped over 1.4% and could be breaking higher towards the mid-June high at $3,452. The weaker dollar on the back of falling Treasury yields boosted bullion prices.
Day Ahead – Q2 Earnings Season
Q2 results have started coming in and in general positive surprises are encouraging so far. Overall, the growth is 5.6% when accounting for both actual and estimated results. Last week saw major banks post bigger adjusted profit hauls from a year ago, while trading revenues were at record highs on geopolitical volatility. Most expressed optimism about the investment banking outlook for the rest of the year after dealmaking rebounded.
This week sees more than 20% of S&P 500 companies reporting with Google parent, Alphabet, and Tesla being the first of the “Magnificent Seven” megacaps to release on Wednesday. The earnings won’t just be about beats or misses. They’ll be about guidance, tone, and momentum. In a market where sentiment is running high, any cracks in the narrative could trigger sharp reversals, which have been punished more than upside surprises. That said, strong execution could add fuel to the stock market rally.
Results are also due from Coca-Cola today, IBM on Wednesday, and Blackstone, Intel, and Honeywell on Thursday. The latter is often seen as a proxy for the broader industrial economy. Texas Instruments release today as well, one of the first major chipmakers to report, so it will set the tone for the semiconductor space. Any signs of stabilisation amid inventory corrections and recent weaker industrial demand should boost the stock.
Chart of the Day – Alphabet in bull channel into results
Alphabet’s earnings will be scrutinised for AI monetisation, advertising growth, and cloud profitability. The company is forecast to earn $2.42 per share on revenue approaching $79.70 billion. AI-related capex is also under the spotlight, and especially how management positions the Gemini model suite in competition with its peers. A 5.7% implied move priced in by the options market shows investors are bracing for meaningful surprises, either up or down. Prices recently broke higher through a major Fib level (61.8%) of the February to April decline at $183.47. Below here is the 200-day SMA and midpoint of that move around $175/176. The daily RSI is marginally overbought after nine straight days of buying.
