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Inside Markets — Consolidation Likely

Consolidation Likely

July 20, 2023

The S&P 500 (SPX) is stalling out at the upper end of technical resistance in the 4515-4565 range. There are no signs yet of bearish momentum divergence, so a period of consolidation is our initial expectation. The index also keeps its bullish trend as long as it remains above ~4275, which is ~6% below current levels.

The bar for mega-cap Tech is higher than it’s been in recent quarters, but no one expects AI-driven upside for any company in Q2 with the exception of NVDA. It’s easy to dismiss LLM rollouts as table stakes for every large Tech company, but MSFT’s copilot pricing strategy announcement yesterday was an important event. Although skeptics doubted the AI monetization opportunity just two months ago, MSFT’s copilot pricing envelope establishes a higher precedent than bullish sell-side analysts assumed. During the event, MSFT estimated the AI-related productivity boost could drive an annual 7-10% increase on top of ~$100T in US GDP.

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