The S&P 500 Index (SPX) closed the week at all-time highs, erasing the losses from previous sessions that had weighed on it. What turned the tide? A one-two punch from Microsoft and Amazon. Their blockbuster earnings showcased accelerating cloud growth and offered timely validation of massive AI spending that has been turning heads across Wall Street.
But not everything is rosy. The Federal Reserve's (Fed) July 29 meeting threw a curveball. Borrowing costs were left unchanged at 3.50%–3.75%, and the central bank acknowledged solid economic activity and a sturdy labor market. However, officials noted that inflation remains stubborn, partly due to the energy crisis. While the odds of a September rate hike have since decreased, 10-year Treasury yields have surged to multi-year peaks. This is a problem for tech stocks: higher bond yields lift the discount rate, making future earnings less valuable and putting a damper on names with lofty valuations. Meanwhile, simmering tensions in the Middle East present a geopolitical wildcard—any supply disruption could reignite price pressures and turn the American regulator back into hawkish mode.
On the bright side, the earnings season is off to a strong start. With about 61% of companies in the rearview mirror, 86% have beaten profit estimates, and aggregate second-quarter (Q2) numbers are up a stunning 47.4% year‑over‑year. This is a powerful tailwind. The only catch? The forward P/E ratio is 19.6, slightly above the ten-year average, leaving limited room for further multiple expansion.
The ultimate recommendation is to buy SPX at the current price ($7,530), targeting $7,700 within two weeks. To protect our position from adverse market movements, place a Stop Loss order at $7,425.
This content is for informational purposes only and is not intended to be investing advice.
