Now the S&P 500 has recorded a 27th closing high since June, a powerful testimony to the underlying strength of the U.S. equity market. The equal-weighted S&P 500, a less-coated but still useful market barometer, has quietly shot through its November high watermark. This surge is the biggest ever in the event’s history. Even with these gains, the implied range on futures has fallen sharply. It’s fallen almost 50 pips from the top of what has been dubbed the recent market hype high, “post-golf-course euphoria.”
It’s earning’s season, baby! For scheduled releases, this week alone, over 150 companies in the S&P 500 will be reporting their financial results. Among them are four of the largest and most influential technology giants: Meta, Microsoft, Apple, and Amazon. Together, these four companies should create tremendous market buzz. In reality, they are on track to exceed the aggregate effect of the next 150 S&P firms combined.
As recently as the start of 2023, the S&P 500 had soared a breathtaking 67%. This incredible feat is an unmistakable testament to the resilience of the U.S. economy. This performance comes with a caveat. In the fourth such occurrence in thirteen weeks, the equal-weighted S&P 500 has beaten its cap-weighted sibling. To many observers, this trend is a harbinger of a new competitive market reality. For one, the cap-weighted S&P 500 is highly concentrated on only seven mega-cap stocks. Much like in recent years, this heavy reliance raises questions about the sustainability of its growth.
Analysts suggest it’s the most remarkable divergence yet between the S&P 500 and wider indices is closing fast. This gap is now at its narrowest point since spring 2023, a significant reversal that occurred during the second quarter of the year. By their estimates, by the third quarter of this year, this spread will narrow even more. This trend indicates that the market is approaching an important tipping point.
Now, just as the U.S. market is changing rapidly, international indices are undergoing a transformation themselves. The FTSE 100 and Germany’s DAX are both on their way to record highs. These foreign markets are achieving remarkable successes without our additional help. They’re doing so without the backing of Big Tech, which makes them different from their U.S. counterparts. Recent global trade realities have pushed currencies like the euro and indices such as the DAX lower, as sentiment shifts regarding the U.S.-EU trade “deal.”
While market participants and investors are evaluating these dynamics, they need to keep an eye on the greater economic picture. The average effective U.S. tariff rate currently stands at 18.2%, its highest point since 1934. This latest jump in tariffs is a product of continuing trade hostilities and will likely affect some companies’ earnings reports this entire week.
Besides rising interest rates, investors are most closely watching the forthcoming earnings reports from Meta, Microsoft, Apple and Amazon. Analysts expect these numbers to have a major impact on market direction and mood over the next few days. Given these four companies’ role in leading the charge, they will have greater control over financial flows than their much smaller counterparts.