Inside Markets — Cyclical Rally

The rotation into cyclical equity groups continues for a second day with the Russell 2000 (RTY) trading just above long-term range resistance at ~2140. This is the RTY’s sixth attempt in 18 months to break above range resistance and the index needs to sustain (2-3 days) closing levels above ~2140 to confirm the move. While it’s difficult to imagine a near-term cyclical recovery in the current fundamental environment, it’s important to recognize the signal in markets and be prepared to act upon confirmation.

The ‘success’ of Q2 earnings season may largely depend on hyperscaler capex plans. GOOGL kicks things off on July 23 with most expecting management to reiterate its message for sequentially increasing spending through ’24. MSFT reports on July 25 with buy-side expectations for F’25 capex in a wide range between $55B-$75B. META reports on July 31 with most expecting a small uptick in midpoint ’24 capex guidance. AMZN earnings are due August 2 with the capex outlook difficult to handicap. The only reason to expect a meaningful increase comes from a recent Bloomberg interview with the new AWS CEO who suggested the unit is still growing faster than any other cloud provider in ‘absolute dollars.’