Corporate earnings came to occupy investors’ attention last week, despite uncertainty around the tariff issue that remains ongoing. That was unsurprising, as more than a third of companies released their 1Q2025 results, including closely watched tech giants like Microsoft, Meta, Amazon, and Apple. As our Chart of the Week (below) shows, those earnings were good, helping the S&P 500 to notch its ninth straight day of advances on Friday and recoup its post-Liberation Day losses. Fundstrat Head of Research Tom Lee views markets as being “in a better place this week compared to last week” and earlier in the month, with probabilities favoring a V-shaped recovery.
Mark Newton, Fundstrat’s Head of Technical Strategy, is somewhat in agreement, but not entirely. Newton acknowledged that “yes, we’ve had a great rally the last few weeks, and the price action has been phenomenal – both in technology and the broader market.” As a result, “we’ve had some meaningful improvement in breadth and momentum. And cycles and seasonality suggest that markets did in fact bottom in April.”
However, “I don’t think [the recovery] will be a straight line, if only because momentum is still quite negative on a weekly basis.” As he explained, “when short-term momentum gets overbought while weekly momentum remains negative, sometimes [markets] can prove to be choppy and not a V-shaped move straight back to the highs. And so that’s what I’m expecting over the next month.”
Newton was pressed to elaborate on timing, and he did so, albeit without high conviction. “I think ideally we get up to 5,750, right near March highs, and then I think we probably are going to have to give some of that back. It probably starts, who knows, potentially within a couple weeks,” he said. That said, he added that, “I don’t sense that we’re going to give back a lot, probably a maximum of 50% of this whole move is given back before we make a move higher.” Overall, however, Newton said he is in agreement with Lee “with regards to thinking that lows are in, this is still a bull market, and we can push back to highs.”
Sector Allocation Strategy
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Chart of the Week
As shown in our Chart of the Week, as of Friday morning, about 77% of the companies that have reported during the current ongoing earnings season have beaten estimates, with an average beat of around 9.3%. “That’s actually very good,” Head of Data Science Ken Xuan told us at our weekly research huddle. “It’s higher than the five-year average of around 8.8% and the 10-year average of around 7%.” Head of Research Tom Lee sees this as evidence that “U.S. companies do an exceptional job of managing shocks,” though he warned that the tariff issue might present bigger challenges to companies in the next quarter.
Something else is happening at a time when many are calling for investors to begin hedging again. Small-caps have broken out vs. Equal-weighted S&P 500 to the highest levels since March. This is good outperformance today which follows a period of the last couple weeks where Small-caps have slowly but surely begun to “kick into gear” and have shown better relative strength than Large-caps. I discussed last month that the spike in High yield FOLLOWED by junk spreads rolling over sharply was something that has coincided in years past with IWM starting to show meaningful strength, similar to 2020. Tom Lee will be happy with this one, but IWM vs RSP has reached multi-week highs based on today’s 2.5% gains. I suspect IWM runs up to test late March highs initially which lies just over 209. Thereafter, pullbacks should not prove too severe before the start of more rebound. This is an interesting development that noone seems to be discussing
QQQ is now up 21% over the last 18 trading days, or more than 1% every trading day from 4/7. Price is now within reach of late March peaks as well as Ichimoku Cloud directly overhead, while TD Sell Setups might be complete by next Monday. While i dislike trying to pick tops to this runup, this does look to be an area of importance where at least some stalling out might occur after this runup and might happen into early next week. This might coincide with META reaching 610, NVDA reaching 120, GOOGL reaching 167 while MSFT reaches areas near early year peaks. Normally how i approach situations like this is to await a break of the uptrend (in this case from the 4/21 lows which lies near 473, or a break of the rising 5-day m.a. which is at 479. Until then, we’ll wait to see the degree of any stallout and/or reversal attempts. Given the lack of 240-min DeMark tools showing much confluence with the daily, i’m not willing to expect too much of a reversal just yet. However, a minor stallout into next week might be possible from 493-503
NVDA 2.34% snapback to highs of the day has helped ^SPX 1.48% recover slightly given its size within the index, and notable that Tech as per XLK 1.67% is now down less than 1% on the session. Trump is having a cabinet meeting now so we can possibly get some headlines from that meeting soon. NVDA CEO notes that Trump should revise the rules for AI chips exports (This pertains to the AI diffusion rule from Biden whereby most countries are limited in how many AI GPUs they can buy. There is talk that those rules will be revised (Deadline 515) whereby the White House allows country by country rather than broad category of countries) KEY for NVDA technically is for $110 to be exceeded now given this triangle pattern of the past month. This would result in strong upside acceleration to 120-2. Conversely it’s important that NVDA not slip under 100 which would constitute a downside break of this triangle. Given the slowdown in volatility as NVDA nears the apex of this triangle, this normally can suggest that a break in either direction might happen in the near future. I am expecting an upside breakout
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