U.S. stocks pause after the rally

SP500

Key zone: 7,400 - 7,550

Buy: 7,600 (on a decisive break above 7,500); target 7,850; StopLoss 7,530

Sell: 7,350 (on strong negative fundamentals); target 7,150-7,100; StopLoss 7,420

Global stock markets began the third quarter without their previous optimism. After an impressive rise in the first half of the year, investors became more cautious: weak U.S. labor market statistics, persistent uncertainty around negotiations between the United States and Iran, and expectations of possible actions by the Bank of Japan are forcing market participants to assess risks more carefully.

Futures on U.S. indices declined, signaling the market’s transition into a consolidation phase after a powerful rally.

Reminder:

The first half of the year turned out to be one of the most successful in recent years. The Dow Jones gained 8.9%, showing its best result since 2021. The S&P 500 rose by 9.6%, the Nasdaq by 12.8%, and the small-cap Russell 2000 Index surged by almost 22%, marking the best start to a year since 1991.

The main growth driver remained the semiconductor and AI sector. Chipmakers formed the main part of the upward movement in the U.S. market. In the second quarter alone, Micron, Intel, and Advanced Micro Devices jointly increased their market capitalization by approximately $2 trillion, confirming that AI infrastructure remains the main focus of investor interest.

At the same time, a noticeable capital rotation took place within the technology sector. The so-called “Magnificent Seven” lost about $2.3 trillion in market capitalization, as a significant share of funds was redistributed in favor of chipmakers. This suggests that the market is still betting on AI development, but investors are becoming much more selective.

In the second half of the year, the room for error is shrinking noticeably.

• Federal Reserve monetary policy is once again coming to the forefront. Investors are closely watching any signals about the possibility of further interest rate hikes, as inflation continues to remain a risk factor. The futures market estimates the probability of a rate hike as early as the end of the month at around 33%, while the probability of a similar move in September is in the 67–88% range.
• Weak employment data somewhat softened expectations. In June, the U.S. economy created only 57,000 jobs against the expected 110,000. This reduces pressure on the Fed in terms of immediate policy tightening, but elevated inflation still limits the room for easing the monetary policy stance.
• The corporate earnings season will become the next key test for the market. Investors are counting on strong financial results from the largest technology companies as early as mid-July, since they must confirm the justification for current high market valuations.
• At the same time, the rise in the yield on 10-year U.S. Treasuries to 4.46% and the continued risk of a more hawkish Fed policy could increase pressure on the most sensitive market segments, including crypto assets.

And what is the result?

The decline in futures that has begun does not erase the strong results of the first half of the year, but it shows that a significant share of positive expectations has already been priced into market quotations. After the large-scale rise, investors are becoming much more cautious and are setting higher requirements for corporate results and macroeconomic statistics.

High inflation and rising bond yields continue to pose risks for growth stocks.

If the earnings season confirms stable profit growth, investments in AI continue to deliver results, and economic indicators remain stable, the upward trend could spread far beyond the semiconductor sector. However, persistently high inflation or a further strengthening of expectations for Fed policy tightening could make the market significantly more vulnerable to a deep correction.

From a technical perspective, the S&P 500 continues to hold near an important support zone, but the recovery still looks unconvincing. Weak macroeconomic data somewhat reduced the probability of an imminent rate hike, but institutional demand remains cautious, and the market structure still shows signs of pressure. Until the index consolidates above the 7550–7650-point range, the current upward movement will most likely be viewed as a corrective rebound. A return below 7100 points would significantly increase the risk of a new downward wave forming.

So we act wisely and avoid unnecessary risks.

Profits to y’all!