Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
Investor Content Strategist
The S&P 500 posted a fresh record close on Tuesday, its 11th so far this year, as the melt-up in US stocks continued. The broad market rose a tiny 0.06% to close at 6,309.62, while the Dow Jones industrial average climbed 0.4% and the Nasdaq 100 fell 0.5% on a weak session for chip stocks.
Earnings season is well upon us and we get the first big test tonight with two of the Magnificent 7 to report in the shape of Alphabet and Tesla. So far earnings are beating forecasts but this is not a huge surprise, even if it’s acting as a tailwind. Of around 90 S&P 500 companies that have reported so far, about 85% have exceeded expectations, according to FactSet.
After consolidating following the bullish outside day on 23 June and fresh ATHs, the hammer reversal on 16 July that defied the April trend line and bounced off the key 6,200 support region, followed immediately by the big bullish candle on 17 July, has spurred fresh momentum to yesterday’s new high. It still looks like the market is defying gravity with momentum divergence on the charts an important factor. But still the melt-up is evident and we have lots of frustrated bulls who feel they missed the rally. Bulls are still in control and the long-term trend off the Jan 2022 and Dec 2024 peaks could see 6,475 or even 6,500, the 127% Fibonacci extension of the Feb-Apr decline,before bears can retake control.
Another small consolidation phase after the 17 July move up to extend to new ATHs. The key test is in the AI narrative from earnings season, which underpins the index. Still looking at divergence in momentum from price action but 127% Fib extension of Feb-Apr drop takes bulls to 23,781.
After making a low of 43,747 on 16 July, the 17 July gap higher has left bulls back in charge and we are testing the top of the recent flag pattern, with a chance to push up to 45k once more.