Big Tech Stocks Rally Looks Stretched, BofA Warns

Bank of America strategists led by Michael Hartnett warn that the rally in US Big Tech stocks, including Nvidia, Microsoft, and Meta, may be stretched. The rally, which has propelled the Magnificent Seven stocks 45% higher since April, needs to see fresh highs in key indexes to keep faith in their stellar performance. The Roundhill Magnificent Seven ETF needs to rise to $60 from its current $58.59 for bullish traders to keep their long positions.

The S&P 500 Index’s relentless advance to record highs faces a crucial test this week, with four technology behemoths worth a combined $11.3 trillion reporting earnings over a two-day stretch. The earnings reports from Microsoft Corp. and Meta Platforms Inc. on Wednesday, and Apple Inc. and Amazon.com Inc. on Thursday, will give investors a key glimpse into the health of businesses ranging from electronic devices and software to cloud-computing and e-commerce. A strong showing is critical to sustaining the S&P 500’s rally.

The S&P 500 dipped 0.1% on Monday, declining after five straight positive sessions. Investors were focused on a trade deal between the US and Europe. So far, Corporate America appears to be taking President Donald Trump’s tariffs in stride. With about a third of S&P 500 members having reported, roughly 82% have beaten profit forecasts, on track for the best quarter in about four years, data compiled by Bloomberg Intelligence show [1].

The Magnificent Seven, which also includes Nvidia, Alphabet Inc. and Tesla Inc., is projected to deliver combined year-over-year earnings growth of 16% in the second quarter, according to data compiled by BI. That’s down from expectations of 19% at the end of March, before Trump announced his sweeping tariffs. Nvidia is the final member of the group to report, in late August. The S&P 500, meanwhile, is expected to show annual profit growth of 4.5%, down from the 7.5% projected in March.

Bank of America strategists led by Michael Hartnett warn that the rally in US Big Tech stocks, including Nvidia, Microsoft, and Meta, may be stretched. The rally, which has propelled the Magnificent Seven stocks 45% higher since April, needs to see fresh highs in key indexes to keep faith in their stellar performance. The Roundhill Magnificent Seven ETF needs to rise to $60 from its current $58.59 for bullish traders to keep their long positions [2].

The market could be losing some of its optimism following the Federal Reserve’s interest rate decision. The Federal Reserve left its benchmark overnight policy rate steady at its July meeting, but not all members agreed with the decision. Fed governors Michelle Bowman and Christopher Waller dissented with the call to keep the key interest rate at a range of 4.25% to 4.50%. When asked about a potential policy change in September, Powell said that the Fed has "made no decisions" [1].

On Wednesday evening, President Donald Trump also announced that the U.S. had reached a trade deal with South Korea, setting tariffs at 15%. That’s lower than the 25% rate Trump had threatened in a letter to Seoul earlier this month. The announcement arrives just ahead of Friday's big tariff deadline [1].

The market is 'losing its glass-half-full bias,' strategist says. The market could be losing some of its optimism following the Federal Reserve's interest rate decision, according to TradeStation global head of market strategy David Russell. "The market could be losing its glass-half-full bias as the realities of tariffs and seasonality kick in. Investors have mostly looked past warning signs like the last CPI report, which showed the impact of trade duties," Russell said. "Those pressures might increase going forward, especially if the White House pursues secondary sanctions on Russia's oil buyers like China" [1].

References:
[1] https://www.nbcdfw.com/news/business/money-report/sp-500-futures-rise-after-meta-and-microsoft-post-quarterly-beats-live-updates/3897429/
[2] https://finance.yahoo.com/news/p-500-rally-faces-11-113000120.html