Markets hold altitude, but thermals are thinning

Wall Street maintained its balance atop record highs on Tuesday, but the air is getting thinner, and the thermals that have carried this market upward are starting to wobble. The S&P 500 did its best impression of a tightrope artist—unmoving but unnerved—as traders eyed the opening act of megacap earnings season with one foot on the accelerator and the other hovering above the brake.

Over 400 stocks in the S&P rose, yet the index itself barely blinked. Beneath that calm surface, there’s a churn. A faltering rally in the “Magnificent Seven” hints that the market’s old leaders might be tiring just as the crowd gathers for the next act. Tesla and Alphabet managed modest gains, but the once-unstoppable advance in tech is now walking the earnings plank, with investors demanding proof that AI profits are more than just smoke and mirrors.

The narrative is still dripping in AI optimism, of course. Tech darlings are expected to deliver 14% profit growth this quarter, while the rest of the S&P 500 struggles to show a pulse. That’s not breadth. That’s imbalance dressed up in cap-weighted makeup. And with names like Texas Instruments stumbling in after-hours trade, the risk of earnings-induced altitude sickness is growing.

Tariffs are back in the frame, too—lurking, not yet lunging. Trump tossed a new deal on the table with the Philippines, imposing a 19% tariff, a symbolic notch on the belt amid deadlocked talks with India and frosty exchanges with the EU. The real prize, of course, is China. Treasury Secretary Bessent heads to Stockholm next week for another stab at extending the current truce. But the clock is ticking, and the August 1 deadline is now a flashing red marker on every trading desk calendar.

Bond yields and the dollar slipped, signaling some tactical de-risking. There’s no panic—yet—but the ground feels softer. Powell’s seat remains warm, with Trump once again questioning his resolve and calling for an aggressive 300bp cut. Bessent insists the chair’s job is safe, but these aren’t the kinds of headlines that inspire confidence in central bank independence, especially with political oxygen thickening into November.

None of this is helping the dollar, which is getting knocked around like a punching bag—taking a left hook from the economically damaging implications of looming tariffs and a right cross from the White House’s nonstop Fed-bashing. It’s less a safe- haven, more a sparring partner.

Retail and hedge funds, meanwhile, keep dancing—pouring $1.8 billion into U.S. equities last week. Flows remain firm, breadth still healthy, and even meme stock ghosts like Kohl’s are being exhumed for one more round under the spotlight. But when 38% gains in a department store start stealing thunder from earnings season, you know the speculative froth is thick enough to surf.

Technical strategists still welcome a 3–5% pullback as a chance to reload, not retreat. But this rally isn’t charging forward anymore—it’s pausing, panting, and glancing over its shoulder at a growing list of risk factors: tariff escalations, Fed credibility, overbought tech, and geopolitical spillage.

For now, the market’s holding the line. But with megacap results inbound and the August tariff tripwire just days away, even the bulls are starting to buckle their chinstraps.

And again, you’ve got the trading community coalescing around a familiar refrain: expect volatility to pick up into the August 1 tariff deadline. The soundtrack hasn’t changed—threats to Fed independence, geopolitical overhang, and trade tensions still loop in the background—but what’s different now is the volume. This isn't just a risk; it's becoming a ritual. The more it’s repeated on desks, in sales notes, and across the sell-side, the more it edges toward self-fulfilling prophecy.

Sure, earnings might give the market a sugar rush—a quick bump, a dopamine spike—but it’s unlikely to be a reload moment. If anything, it’s shaping up to be a “cash out and reassess” window. Without a breakthrough on trade—something meaty enough to wedge into the USTR’s press log—the bulls may run out of oxygen right as the air gets thinnest.

The setup is starting to feel tired. Not broken, just cautious. Summer tape, elevated valuations, and now a countdown clock ticking louder with every trading session. And unless a major trade accord lands like a deus ex policy machine, that expiration date on calm may arrive sooner than anyone's portfolio is positioned for.