Inside Markets — Trade Developments

We’ll see the first of the Mag 7 reports this afternoon with GOOGL and TSLA due after the close. Costs and margins are always important metrics for GOOGL (all hyperscalers) with investors most interested in management comments around AI search competition and monetization plans. The TSLA report is less important for the broader market, but there’s obvious interest in the success of the Robotaxi expansion plan and competitive landscape. The last earnings call was heavily skewed toward AI and Optimus (humanoid bot) with optimistic comments encouraging retail buying.

The technical support band on the SPX is a bit wider than the last time we wrote on the topic. New support now sits in the 6025-6140 range with no technical resistance overhead. Fund flows improve as we move deeper into earnings season with the buyback window reopening for more companies. This dynamic will be in force through most of August, but summer liquidity conditions later in the month will result in less buyback activity.

High-beta stocks remain most at risk as positioning remains crowded after reaching the 100th percentile last week. If one doesn’t occur sooner, crowding in high beta stocks will likely unwind as summer liquidity conditions give way to uncomfortable air pockets. Positioning in the momentum factor has already started to unwind with the group off ~8% from the recent high. The momentum factor tends to ‘unwind’ 2-3 times during a calendar year with the average decline in the 12%-15% range. Beta is a measure of volatility, whereas momentum refers to stocks exhibiting strong recent price performance, which is usually a byproduct of superior earnings growth. Unwinding crowded high-beta positioning is usually more violent with declines often exceeding 30%-40%.