The S&P 500 and Nasdaq remain near record highs, as tariffs and monetary policy debates have had little stock market impact. Last week, the Nasdaq Composite was leading with a gain of over 1.6%. The S&P 500 increased approximately 0.7%, while the Dow Jones Industrial Average was just above the flat line. This week, 112 S&P 500 companies will report earnings. Reports from Alphabet (GOOGL, GOOG) and Tesla (TSLA) are in focus.
With the Fed pausing updates ahead of the July 29–30 meeting, markets will focus on U.S. manufacturing and services data during a quiet week.
Rate debate heats up
Fed governor Christopher Waller said in a New York speech that policymakers should cut interest rates this month. He argued the federal funds rate is over a percentage point too high and urged the Fed to cut rates.
“With inflation near target and the upside risks to inflation limited, we should not wait until the labour market deteriorates before we cut the policy rate,” Waller said.
However, recent moves in market pricing suggest investors are becoming less optimistic about rate cuts. Stubborn consumer inflation, unexpectedly strong June retail sales and weekly unemployment filings pushed back interest rate cut expectations last week.
As of Friday (18 July), the CME FedWatch Tool showed markets pricing in just a 5% chance of a July rate cut. This was down from about 13% a month earlier.
In a note to clients on Friday, Citi chief US economist Andrew Hollenhorst wrote: “We expect the committee to arrive at a consensus to cut rates in September as the hawkish case weakens with the job market loosening further and no signs of tariffs spilling over into a broader inflationary trend.”
Big banks and Netflix beat estimates
Big banks launched the second quarter earnings reporting period with a series of better-than-expected results. Netflix (NFLX) followed on Thursday night with an earnings report that beat estimates. Both the streaming giant and major financial banks indicated that the US consumer remains strong.
Analysts expect S&P 500 earnings to grow 5.6% compared to the same quarter last year, according to data from FactSet. This is up from the 4.8% analysts were expecting the previous week.
Despite strong earnings, some stocks that rallied before reports saw muted reactions afterward. For example, Netflix shares fell nearly 5% on Friday, even after raising full-year revenue guidance. Netflix’s stock had nearly doubled over the past year before the earnings release.
Netflix shares, for instance, dropped nearly 5% on Friday even after the company raised its full-year revenue guidance. Netflix’s stock had nearly doubled in value over the last year prior to the earnings release.
“An overall ‘good’ set of results and guide were not good enough for elevated expectations, in our view,” William Blair analyst Ralph Schackart wrote in a note titled “Good Quarter, but Tough to Surpass High Expectations.”
As the market nears record highs, some Wall Street strategists worry about weak stock reactions to strong earnings ahead of Q2 earnings season.
Julian Emanuel, head of the equity, derivatives, and quantitative strategy team at Evercore ISI, wrote in a note to clients on Friday: “The challenge is valuation: after a 30% rally off the April lows, the market is trading at 24.7 [trailing twelve-month] earnings, leaving strong results, as Financials demonstrated to start the season, just enough to maintain market altitude while slight disappointments risk material pullbacks.”
Big tech to drive S&P 500 earnings growth
Meanwhile, earnings season is heating up as Alphabet (GOOG) and Tesla (TSLA) prepare to release updates on Wednesday 23 July. These companies start the quarterly reports for the ‘Magnificent Seven’ tech stocks, expected to drive S&P 500 earnings growth this quarter.
The Magnificent Seven tech stocks are projected to have increased earnings by 14.1% compared to the same quarter of the previous year. The remaining 493 stocks in the index are expected to show just 3.4% year-over-year earnings growth. So, whether the S&P exceeds earnings expectations will largely depend on strong results from Big Tech.
“It’s time for earnings to deliver,” Citi strategist Scott Chronert wrote in a note to clients. “Commentary will be key if we hope to see further upside in revisions, and hopefully, some inflections in cyclical sector growth to finally drive broadening.”
He added, “The issue is the setup. It feels like the market is moving ahead of positive developments. And as we continue to note, sentiment is elevated, and implicit growth expectations are high.”
TSMC surges past trillion-dollar mark
The main chip supplier for Apple Inc. (AAPL) en Nvidia Corp. (NVDA) saw its shares hit a record high on Friday, an almost 50% increase from an April low. The company’s market cap now rivals Berkshire Hathaway’s, and further gains could place it among the world’s top 10 most valuable firms.
TSMC’s stock rally reflects growing investor confidence that the chipmaker will benefit from the AI boom. Last week, the company raised its full-year revenue forecast to about 30%, signaling strong demand for AI manufacturing.
“We think that TSMC’s tone towards advanced node demand is even more positive with AI customers showing no signs of demand slowdown,” wrote Goldman Sachs Group Inc. analysts including Bruce Lu after TSMC’s quarterly earnings. “We expect to see a higher magnitude of price hike in 2026.”
Verizon shares rise following earnings beat
Verizon shares rose over 4% in premarket trading on July 21 after beating second-quarter revenue and earnings estimates.
The company reported adjusted earnings of $1.22 per share on $34.5 billion in revenue. That beat analyst estimates of $1.18 per share and $33.74 billion in revenue, according to LSEG. The company also raised its full-year guidance.
Verizon stock has gained over 2% this year, underperforming the broader market. However, shares rose nearly 5% in the past six months, slightly beating the S&P 500’s 4.1% gain.
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