Google Capex Plans Boost AI, Market Optimism, But Watch for This Warning Sign
Here's what's helping the indexes right now even as the potential for stalling increases.
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The Magnificent Seven MAGS is holding steady on Thursday morning as Alphabet GOOGL performed better than feared and greatly increased its capital expenditures. Strong AI demand is driving more spending on semiconductors and data centers, which is pushing the Nasdaq higher. Tesla TSLA, meanwhile, is offsetting some of those gains as it missed estimates, loses market share and must deal with the loss of EV incentives.
Google's earnings report is calming some concerns about valuation and the potential for a "sell the news" reaction. Unlike last quarter there are no worries about the level of capex. That will be a very important theme as the remainder of the Mag 7 report.
Another positive helping to hold up the market is optimism that some major trade deals will come together. There is talk that a deal with the European Union that will set tariffs at 15% is very close. This would be a better deal for Europe than was expected and is helping to bolser European exchanges.
One of the biggest miscalculations that the bears have made is predicting that the market would negatively react to Trump’s aggressive tariff plans. The positive market action is giving Trump a green light to stay tough in his negotiations and helping to close some of these deals.
While the news flow continues to be quite positive, the key question is whether it is good enough to offset extended technical conditions. There has not been any glaring negative news to give market players an excuse to head for the exits, but it is becoming more difficult to push the indexes even higher on positive news flow.
The real warning sign to watch for will be a negative reaction to good news. Watch for intraday reversals and a poor close to signal that the momentum is running out of juice.
All is fine right now, but the potential for stalling is increasing as positive news is discounted and some potential negatives gain traction.
At the time of publication, Rev Shark had no positions in any securities mentioned.
