Stocks struggle to maintain momentum as earnings season impresses

Yet another week of strong earnings releases from the US, yet high expectations appear to be hindering the ability to maintain the ongoing uptrend. Meanwhile, the rise of both inflation and growth in the eurozone has dampened sentiment somewhat given the potential implications for monetary policy. 

  • Amazon declines drive US markets lower
  • Stocks struggle to maintain momentum despite impressive earnings season
  • Eurozone inflation and growth data puts the ECB into the limelight

The Nasdaq is leading the drive lower as we close out the week in a more pessimistic mood, with leading the declines. With traders selling Amazon stock despite a third consecutive $100 billion quarter, markets are clearly setting a high bar for these pandemic outperformers. Nonetheless, despite the high expectations for tech stocks, we have seen 94% of the S&P 500 tech earnings outperform on earnings thus far. Undoubtedly US earnings season has been a huge success thus far, with 89% outperforming on earnings, and 87% outperforming revenue estimates. Nonetheless, with the S&P 500 largely flat over the course of the week, we are seeing stocks struggle to maintain their upward trajectory given the expectations brought by the impressive figures already announced in previous weeks. 

While yesterday saw markets gain ground off the back of disappointing economic data out of the US, today has brought more impressive growth and inflation figures from the eurozone. Bigger-than-expected gains for both eurozone Q2 growth (2%) and inflation (2.2%) provides greater expectation that the ECB will seek to tout a more hawkish line going forward. With tapering a growing reality, we are increasingly seeing markets take on an inverse correlation where good economic data is bad for stocks.

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