Tariff Flurry Can’t Kill This Market, But Earnings Could Be a Different Story
After another bullish week, investors prepare for earnings season to test a strong market.
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Investors did an exceptional job this week of ignoring a flurry of tariff announcements by President Trump. With the indices and many stocks technically extended, tariffs were a very good excuse for some profit taking, but the selling was extremely mild, and there were plenty of dip-buyers on some minor pullbacks.
Nvidia NVDA has been the market leader, and the Magnificent Seven MAGS names have sent the message that tariffs are not an issue for that group. Since the big-cap AI names comprise such a large share of the overall market, they more than offset the more economically sensitive names.
Another very bight spot was Bitcoin IBIT which broke out of a beautiful looking chart pattern and rampage higher on Friday. Since there is no way to value Bitcoin with any level of precision, it moves to a much greater degree on technical patterns. The setup for the breakout was very strong and it was self-fulfilling to a large degree.
One of the most notable aspects of recent market action is the tendency for a weak open and a strong close. In the last 14 trading sessions, the S&P 500 closed lower than it opened just three times. Going back to the bottom in April, there have only been about a dozen sessions with a close lower than the open. This pattern of intraday strength is very bullish, and until that shifts, the bulls will remain in control.
Despite the positive intraday action on Friday, the underlying action was poor, with breadth running around three to one negative. Small caps gave back a chunk of recent gains with the Russell 2000 IWM pulling back about 1.2%. The number of new 12-month highs dropped sharply to around 280 names.
Next week is the start of earnings season, and there is sure to be more tariff talk as well. The $1 trillion question is whether earnings will be the catalyst for the corrective action that the bears have been anticipating for many weeks. This is a very resilient market with positive sentiment and optimism about the economy, but there will be pressure to quickly lock in gains at the first sign of weakness.
Have a great weekend. I’ll see you on Monday.
At the time of publication, DePorre had no positions in any securities mentioned.
