July 26, 2023
SPX: Yesterday, the S&P 500 (SPX) managed to close at our predetermined technical watershed level of 4567. Closing levels above 4567 would likely result in increased bullish momentum. Failure to break above 4567 should result in consolidation with bullish trend dynamics remaining intact at levels north of 4325.
Caveat emptor: Positioning and sentiment are no longer supportive of higher levels. AAII bullish sentiment reached extreme levels last week at 51.4. This is the third highest level ever recorded. Bearish sentiment is also at extreme levels with its 21.50 reading the fourth lowest on record.
Fed: The ‘hike and pause’ scenario is the most likely outcome from today’s Fed meeting. Any hint of this hike being the end of the cycle would create upside risk for equities. The declaration of an end to the hiking cycle would have to follow more below-consensus core CPI prints. July CPI is due August 10, making the Fed’s annual Jackson Hole Summit held from August 24-26 the earliest potential event where the Fed would make this announcement.
Mega-cap: The bar is higher this quarter for mega-cap Tech earnings, but results have been largely inline with expectations thus far. Overnight, GOOGL and MSFT both issued strong earnings growth and solid H2 guidance that included higher than expected capex, which largely supports the recent AI-driven rerating of Tech multiples.