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The stock market has found reasons for optimism, from corporate earnings and merger deals to the de-escalation of trade conflicts and expectations of a federal funds rate reduction. After a brief consolidation, the S&P 500 has resumed the practice of reaching record highs on a daily basis and is currently approaching the previously indicated level of 6,920.
Approximately 86% of reporting companies exceeded profit forecasts, while 69% surpassed revenue expectations. This latter figure is the highest since 2021. The deviation of actual data from estimates is 2.4%, significantly higher than the historical average of 0.5%. The financial results of American corporations demonstrate resilience to tariffs, as they mitigate negative impacts from import duties through price increases and/or cost reductions.
Performance of actual revenue exceeding projections
However, as the S&P 500 climbs higher, fears of a downturn increase. Bears are warning that if companies do not meet Wall Street analysts' forecasts, their stock prices typically fall by an average of 5.5%. If something similar happens with tech giants like Amazon, Meta, Apple, or Microsoft, it could pull the entire broad market index down.
The last two corporations are in a battle to become the second-largest issuer in the world after NVIDIA, with a market capitalization exceeding $4 trillion. Microsoft briefly crossed this threshold at the beginning of the year but has not returned since. Many investors are eager for it to do so.
Investment performance dynamics for Apple and Microsoft stocks
The main driver of the S&P 500 rally is the de-escalation of the US-China trade conflict. Treasury Secretary Scott Bessent stated that a very successful framework was established during negotiations, leading to a preliminary consensus. Historically, the broad index has demonstrated positive dynamics on rumors of improved relations between the world's largest economies.
In April, it soared by 1.7% on reports that Washington might lower tariffs. In May, it rose by 3.3% following a successful deal in Geneva. In September, the breakthrough in the TikTok agreement was a catalyst for the stock market rally, and in October, Donald Trump's statements about the instability of import tariffs prompted further gains.
Risks undoubtedly remain. The eccentricity of the White House owner, the hawkish rhetoric from the Fed, economic growth slowdowns, or disappointing earnings reports could trigger a correction in the S&P 500. However, when investors return to buying the dips, the stock market has little to fear.
Technically, on the daily chart of the broad stock index, the gap up at the market open has brought the S&P 500 closer to the previously specified target level of 6,920. The strategy of forming long positions on pullbacks is working. Is it worth abandoning this strategy? As long as quotes remain above the 6,800 mark, the focus should remain on buying.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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