Inside Markets — Near Term Outlook

Summer liquidity conditions usually produce choppy price action where each day seems to have its own narrative. It’s important to recognize that these conditions also distort the signal quality of price action. This usually lasts until the first full week of September (in this case the week of 9/8) when fund flows and estimate revisions tend to deliver a more challenging relationship between risk and reward.  In our view, a period of consolidation would be a healthy technical development in a broader bullish trend that finds near-term support in the 6105-6140 zone.

Despite the healthy rally off April lows, positioning metrics remain slightly below neutral, sentiment indicators are at benign levels and sidelined cash (US money market funds) is at a record $7.15T.  At 21x forward EPS estimates, the SPX is near the upper end of its historical valuation range, but pullbacks should be an opportunity to add exposure given strong Q2 earnings season metrics, favorable revision trends, elevated corporate margins and super-strong AI/data center capex trends.