A rare five-for-five: New highs, and the quiet build of asymmetry

Welcome to Club 6400: A rare five-for-five run leaves the bears behind

It’s been a week of champagne and confetti on Wall Street—a rare five-day sweep of record closes for the S&P 500, the kind of “five-for-five” perfection you only get a few times a decade. Welcome to the cusp of Club 6400—wasn’t it just Monday we were handing out wristbands for 6300?

Fueled by a one-two punch of strong corporate earnings and a burst of trade-deal optimism, the index surged another 0.5% on Friday, dragging the Nasdaq (+0.4%) and Dow (+201 points, or 0.5%) along for the ride. All three majors notched solid weekly gains: the Dow climbed 1.3%, the Nasdaq 1.2%, and the S&P 1.5%.

Earnings season has come in like a well-oiled machine. Over 82% of the 169 S&P names that have reported so far beat expectations, with heavy hitters like Alphabet and Verizon leading the charge—up 4% and 5% on the week, respectively. That strength under the hood has been key to keeping this market engine humming.

Overlay that with a sprinkling of Trumpian trade drama—15% "reciprocal" tariffs with Japan, a new deal framework with Indonesia, and potential EU negotiations slated for Sunday in Scotland—and you've got the narrative fuel bulls love to ride.

Even the macro winds seem to have eased. Inflation remains tame, interest rates are range-bound, and the Fed looks unlikely to rock the boat next week. Powell’s recent meeting with Trump was more photo op than policy pivot—bonds didn’t flinch, and the dollar inched higher.

As it stands, the market is calling the bluff on the doom narratives that have circulated since Trump took office. Recession? Didn’t show. Inflation spiral? Didn’t stick. Global slowdown? Not yet. The tape keeps grinding higher while headlines get left behind.

Next week brings a gauntlet—150+ S&P 500 companies report, including Meta and Apple. The Fed meets again, too. But for now, the bulls are dancing, and the only thing they fear is missing out.

Earning season highlights

1. Biggest sales beats in 4 years: 30% of firms have now reported, and according to SocGen 84% are beating EPS and 79% beating top-line estimates. In past years, profit margin surprises mainly drove the beats, but the latest earnings show the strongest top-line surprises in 4 years.

Goldman notes that earnings are clearing the low bar established into the quarter, as 60% of companies reporting have beaten EPS by >1 std dev (vs 48% historic avg), while only 11% of companies have missed by >1 std dev (vs 13% historic avg)

2. Rational behavior: Stocks that beat have outperformed by 0.9%, while misses underperformed by 1.5%, reflecting classic market rationality.

3. Profit margins broadening: S&P 500 profit margins continue to rise, including the ex-Tech sectors (cover chart).

4. Highest EPS revision ratio in 3 years: The EPS revision ratio stands at 1.4, its highest level in 3 years, indicating 14 upgrades for every 10 downgrades.

5. US leads: S&P 500 EPS revisions have led global revisions for 10 weeks, outperforming global EPS 74% of the time over 5 years. Reported EPS is at a 2-year high versus other benchmarks, such as European stocks.

6. USD offsets tariffs: A 10% USD drop adds a 4% positive EPS impact, while a 10% tariff rate subtracts 3%. Improving trade deficits and a weak USD policy goes hand in hand.

7. Sector and style trends: Communications and Tech firms have all beaten EPS and sales; Materials and Consumer sectors lag. Quality and Momentum styles lead; Value and Small-cap are lagging.

8. Rate-sensitive sectors and styles are lagging as they await Fed cuts.

9. Corporate activity is strengthening: S&P 500 revenue per employee has hit new highs. Capex to sales is rising across sectors; leverage is at its lowest since 2014. Buybacks are up 16%, and dividends up 6% over 12 months. M&A and IPOs are edging up gradually. Corporate signals show firm corporate activity but no peak equity fears yet

10. SocGen's view on S&P 500: The secular backdrop of structurally higher nominal growth is intact post the global fiscal policy shifts. Strong returns from S&P 500 last 3 months has proved the French bank's US outlook, crisis of confidence is short-term…. As a result, the S&P 500 is now just a few points away from socgen's end-2025 target. However, there is still upside risk as the Fed card has not fully played out, either on curve steepening or the unfinished business of weakeing USD. Moreover, the peak excitement for US stocks involves the broadening of the index performance. Looking ahead, SocGen expects that S&P 500 to range: 5500-6750, and it sees bubble risk only beyond 7500.

Tariffs, tranquillity, and the summer of shrugs: Markets sail into the dog days with eyes on September

On “ The Street “ we call it entering Call it the “Dog Days of Summer” if you like—but the real mutt here is volatility, muzzled and lying flat as tariff headlines swirl with all the urgency of a beach breeze. The market has grown desensitized to trade sabre rattling, and the latest volley of tariff announcements—Japan (15%), the Philippines and Indonesia (19%), and the EU likely landing somewhere between 15%-20%—barely ruffled any feathers. Equities punched out fresh highs and the VIX curled up at 15.0, a nap-time low not seen since February.

Compare that to the April 2 tariff tremor, and the contrast is stark. Back then, traders ducked for cover. Today? They’re shrugging. The real reason for the market's sangfroid isn't that these tariffs are bullish—it’s that they weren’t worse. When you’ve braced for a Category 5 and get a tropical storm instead, relief rallies win the day.

More than anything, it’s the clarity that’s being priced in. Businesses don’t mind headwinds if they can see which way they’re blowing. The U.S. Trade Policy Uncertainty Index for June just gave up half its springtime spike, and that’s no coincidence. With the final average effective tariff rate settling in around 16%—a notch above our prior 12–15% estimate, but not a game-changer—the market can finally exhale.

None of this rewrites the macro script. We’re still leaning toward a ‘stagflation-lite’ path: tepid growth, sticky inflation, and a Fed that would love to ease but won’t jump the gun. Rate cuts are coming—but not next week, no matter how loudly the White House taps the glass at the Eccles Building. Fed funds futures barely give a 3% chance of a July cut, but a 66% chance of action by September. Looking at the backlog data, that’s about right. For once, the Fed and the market are in sync—at least through December.

But I’m not buying the postcard. I’m running a probability play here—call it a tariff-triggered time bomb—with the view that the VAT-style tariff shock shows up in August CPI. If that lands hot, the September rate cut odds drop to 30%, and my trade structure holds. But if the jobs market cracks next week—if claims spike or payrolls miss badly—then one of my asymmetry plays gets tossed out the window.

I’ve drawn a line in the sand: if September cut odds push above 75-80 %, you absolutely don’t want to be long dollars into that shift. That’s where my reversion trade has a built-in rev limiter—correlated, conditional, and not something you marry. Just something you dance with while the music plays.

Beyond that, 2026 opens a new chapter, perhaps with a new Chair more inclined to bring rates down faster.

Next week’s data won’t move the goalposts. We’re pencilling in a 1.6% annualized rebound in Q2 GDP, but it’s a modest bounce—more an import contraction than an export boom. Payrolls are expected to slow to +114k, unemployment is projected to tick up to 4.2%, but layoffs remain scarce. Jobless claims have improved for five straight weeks—hardly the stuff of a recession.

And as for inflation, core PCE likely heats to 0.26% MoM, keeping the annual print anchored at 2.7%. Not enough to completely derail the Fed in September, not soft enough to rush them either. The gears of the U.S. economy are turning slowly but steadily.

So here we are: tariffs rising, inflation simmering, growth coasting, and policy on cruise control. Markets are sailing into August on calm seas—maybe too calm. These aren’t just the Dog Days—they’re the days when everyone’s watching the horizon, knowing storm season isn’t over, just delayed.

BTW, I use the four most competent economic teams to poll these numbers, so they may reflect differently than what Reuters or Bloomberg polling may show

Trader view: Consensus is a crowded trade: Why I’m hedging while the band plays on

The market’s humming a strange tune—bullish on US stocks, but crooning the blues for the dollar. It’s a duet that doesn’t usually chart together, but here we are: equity exuberance on one side, greenback gloom on the other. From where I sit, that’s not just a quirky remix—it’s a signal flare. Something’s misaligned beneath the surface.

This isn’t just divergence—it’s a regime shift. Normally, a strong US economy lifting the S&P would drag the dollar up in tow. But now, global capital is stampeding into the Magnificent 7 like it’s 2021 all over again—AI-fueled, rate-cut-primed, and geopolitically sedated—while the dollar gets left behind, weighed down by a fiscal trajectory that’s veering toward the unsustainable.

Goldman’s July QuickPoll tells the story: 51% bullish on the S&P, two-thirds loading up on Big Tech, and an eye-popping 7-to-1 skew against the dollar. That’s not just consensus—that’s everyone on the same side of the lifeboat. And we both know what happens when the balance shifts, even slightly.

The equity narrative has its usual villains and heroes. The Fed’s back in the dove costume. AI is the messiah. Tariffs and geopolitics? Treated like fog on the runway—annoying but not enough to divert the landing. Risk-on is back, and it’s wearing a party hat.

But when confidence curdles into consensus, and consensus hardens into doctrine, the tape gets fragile. Not top-heavy in the doomsday sense—but brittle enough that one bad print, one hawkish turn, one credit event, can snap it.

What really gnaws at me is the time inconsistency. You can’t claim an economy strong enough to justify record equities while pricing in a weak dollar.

I can talk all day about America's fiscal fairy tale—growth without gravity, spending without consequence, inflation without cost. But let’s be honest: every major economy is in the same boat. Europe’s running deficits, Japan’s still printing, and China’s propping up weakness with stimulus. There’s no clean alternative.

That’s what makes the dollar doom trade feel off. Investors are piling in as if there’s a safe haven somewhere else. But the euro? Near 1.20? No thanks. The yen? Still zero-bound.

This isn’t just a US problem—it’s a global fantasy. The whole world’s playing the same tune. And when the music stops, it won’t matter who missed the note. The whole band’s going down.

So how do I play it? With asymmetry in mind of course. When the crowd is this one-sided, hedges get cheap. A contrarian pair—short equities, long dollar—feels early, maybe even foolish. Until it doesn’t. This isn’t about calling a top. It’s about positioning for the moment when something breaks the trance.

I’ve seen this movie before. The names change, the backdrop morphs, but the script repeats: groupthink, overconfidence, and the illusion of invincibility. Right now, everyone’s leaning the same way. All it takes is one jolt—a CPI surprise, a geopolitical rupture, or Powell pulling the punchbowl—and this tidy narrative starts to fray.

So yeah, while Wall Street cheers the AI miracle and chases new highs, I just started scanning for exits and buying dollars. Markets rarely offer warnings. They offer lessons in volatility, in speed, and in humility.

And just to be clear, this isn’t some grand macro proclamation or a long-term bearish turn. I still expect the dollar to weaken again by year-end, as the Fed is likely to cut 50bps in December, albeit ( the dollar) from a higher starting point. And let’s be real: shorting stocks over the long run? That’s a fool’s game. History never favours that stance.

This isn’t about ideology—it’s about trading. It’s about timing, probability, and recognizing when the setup’s stretched just enough to bite. Some trades are only for the brave: shorting strength, fading the bearish dollar consensus, leaning into discomfort. But that’s the job. You’re not marrying a trend—you’re slipping in for a short-term reversion before the tape blinks and the P&L lights up. If it’s not a little fun, it’s probably not worth it.

Chart of the week

With Fed policy under a microscope, attention switches to the labor market next week - culminating in the release of the national employment report on Friday. Economists polled by Reuters expect the economy added 102,000 non-farm payrolls this month - which would be the lowest monthly tally since February. However, the U.S. Labour Department on Thursday showed jobless claims last week fell to 217,000 - well below estimates - signalling continued resilience in the job market.