Earnings Season Faces Its First Major Test, Inflation and Geopolitics Set the Tone
Markets enter a pivotal week with investors turning their attention back to fundamentals after another volatile but resilient week for global equities. The start of Q2 earnings season, June inflation data and Federal Reserve Chair Kevin Warsh's first congressional testimony all have the potential to reshape expectations for interest rates and determine how markets reassess interest rate expectations and the outlook for risk assets.
Despite renewed geopolitical tensions and persistent inflation concerns, risk assets continue holding up remarkably well. However, leadership has become narrower once again, earnings expectations remain elevated and policymakers continue signalling caution on inflation. With several major catalysts arriving together, markets enter the week with elevated expectations across earnings, inflation and monetary policy.
Market Overview: Earnings Season Takes Centre Stage
US equities finished the week on a positive note despite another bout of geopolitical volatility. The S&P 500 and Nasdaq each gained more than 1% after recovering from losses triggered by the collapse of the Iran ceasefire, reinforcing the resilience that has characterised markets throughout much of 2026.
The recovery, however, relied on a much narrower group of leaders than in recent weeks. Semiconductor stocks once again drove much of the rebound, while Meta posted its strongest weekly gain since early 2024 and SK Hynix attracted strong demand following its Nasdaq debut. The report notes that, after a period of improving breadth, investors have once again concentrated their attention on AI-related opportunities.
The AI narrative itself also continues to evolve. China's rapid growth in AI model adoption and token usage is intensifying competition with the United States, reinforcing growing competition within the global AI landscape. Rather than weakening the structural AI story, the report suggests competition within the sector is becoming a defining theme for the second half of the year.
With Q2 reporting season now beginning, markets are preparing for their next major test. Large US banks will officially kick off earnings season, providing investors with an early indication of whether current profit expectations remain achievable. Earnings continue to underpin equity valuations, but with forecasts already elevated, companies now face a much higher hurdle to sustain the market's recent momentum.
Macro & Policy Watch: Inflation Returns to the Spotlight
The macro focus shifts firmly towards inflation and monetary policy this week. June CPI, PPI and Retail Sales data arrive alongside Federal Reserve Chair Kevin Warsh's first appearance before Congress, offering investors fresh insight into both the inflation outlook and the future path of US interest rates. Together, these events are expected to play a central role in shaping market sentiment.
Recent FOMC minutes maintained a broadly hawkish tone despite a divided committee. While only a handful of policymakers favoured an immediate rate increase, markets continue pricing at least one additional hike later this year as inflation risks remain linked to AI investment, tariffs and higher energy prices. Warsh's testimony will therefore be closely watched for any indication of how the Federal Reserve intends to balance inflation risks against the broader growth outlook.
Geopolitical developments also remain firmly in focus. Renewed tensions involving Iran and the Strait of Hormuz pushed oil prices sharply higher before easing towards the end of the week. Although improving supply conditions could eventually soften prices, energy markets continue representing one of the key drivers of inflation expectations and policy uncertainty.
Gold continues reflecting these competing macro forces. China's strongest gold imports since March 2024, together with ongoing central bank buying, remain supportive over the longer term. At the same time, the possibility of additional rate hikes continues creating near-term headwinds, leaving precious metals caught between strong structural demand and tighter monetary policy expectations.
The week ahead brings together the market's three biggest themes: earnings, inflation and central bank policy. Markets have absorbed recent geopolitical shocks with surprising resilience, but expectations are now significantly higher across the board. Whether equities can build on recent gains will largely depend on corporate earnings, inflation data and the tone set by policymakers over the coming days.
Technical & Sentiment Breakdown: Constructive Trend, Higher Expectations
The broader technical backdrop remains constructive, although leadership has become increasingly concentrated. The S&P 500 continues holding its recent breakout while the Nasdaq remains close to record highs, but much of the market's recent strength has once again been driven by semiconductors and AI-related stocks. The report suggests that earnings season will determine whether leadership broadens once again or remains confined to a handful of sectors.
Forward earnings continue providing one of the strongest supports for equities. Analysts have steadily raised earnings expectations heading into Q2 reporting season, reinforcing confidence in corporate fundamentals despite growing macro uncertainty. As long as earnings continue meeting expectations, valuations remain broadly supported.
The challenge, however, is that those expectations have become increasingly demanding. With forecasts continuing to move higher, companies now have less room for disappointment. The report argues that the next phase of the rally will depend more on earnings delivery than further valuation expansion.
Market participation also continues showing encouraging signs beneath the surface. Smaller and mid-cap companies are expected to benefit as economic activity broadens, helping reduce the market's dependence on a handful of mega-cap technology stocks. If earnings remain resilient across sectors, broader participation could provide a healthier foundation for the current bull market.
Investor positioning remains supportive, although optimism has increased. Fund managers continue holding historically low cash balances while discretionary positioning remains relatively measured, suggesting there is still capacity for additional buying if earnings and macro data surprise positively.
Volatility indicators continue sending a constructive message despite growing uncertainty beneath the surface. Index volatility remains subdued, although elevated single-stock volatility reflects greater focus on company-specific outcomes ahead of earnings season. Rather than signalling broad market stress, the report views this as an environment favouring selective stock picking over passive exposure.
Technology also continues attracting institutional support. Record inflows into semiconductor ETFs and increased insider buying across the technology sector suggest investors continue viewing recent weakness as a consolidation within a broader uptrend rather than the start of a sustained reversal.
Last Week's Recap: Markets Look Through Geopolitics as Earnings Take Focus
The past week highlighted the market's resilience despite renewed geopolitical tensions. While headlines surrounding Iran and the Strait of Hormuz briefly unsettled risk assets, equities recovered quickly as investors shifted their attention towards inflation data, Federal Reserve policy and the beginning of Q2 earnings season. Markets recovered after initial geopolitical volatility as attention shifted towards earnings and key macro events.
Key Highlights:
- Macro:
Markets continued adjusting to a more hawkish policy outlook following the latest FOMC minutes. Attention has now shifted towards June CPI, PPI and Retail Sales data, alongside Federal Reserve Chair Kevin Warsh's first congressional testimony, which are expected to provide greater clarity on the outlook for interest rates.
- China:
China remained central to discussions around artificial intelligence and global competition. Rapid growth in AI model adoption, expanding token usage and continued investment in AI infrastructure reinforced the country's increasing influence across the technology landscape while strengthening competition with leading US developers.
- Earnings:
Q2 earnings season now takes centre stage as major US banks begin reporting. Forward earnings expectations continue supporting equity valuations, although the report notes that elevated expectations leave companies with less room for disappointment over the coming weeks.
- Commodities:
Gold remained supported by strong physical demand from China and continued central bank buying, while expectations for further interest rate increases limited near-term upside. The longer-term outlook remains constructive, although policy expectations continue driving shorter-term price action.
- Crypto:
Bitcoin stabilised despite record ETF outflows during June, supported by optimism surrounding regulatory developments and continued institutional interest in tokenisation. The report highlights improving sentiment even as the market continues navigating near-term resistance and expects policy developments to remain an important driver.
- Oil:
Oil prices remained driven by geopolitical developments throughout the week. Although renewed tensions initially pushed crude higher, improving supply expectations and easing price pressures continue supporting the view that the longer-term outlook remains more balanced as markets assess both geopolitical risks and global demand.
The Week Ahead: Key Data and Market-Moving Signals
With Q2 earnings season now underway, the focus shifts to one of the busiest macro weeks of the quarter. US inflation data, China's latest growth figures and Federal Reserve Chair Kevin Warsh's congressional testimony are expected to shape market sentiment, while the first wave of Q2 earnings will provide an important test for current equity valuations.
Monday, July 13
- India: CPI Inflation
- Germany: Current Account
- US: Federal Budget Balance
- OPEC Meeting
- Fed: Bowman Speaks
- Fed: Waller Speaks
- ECB: Lagarde Speaks
- ECB: Schnabel Speaks
- BoE: Pill Speaks
Tuesday, July 14
- China: Trade Balance
- China: Exports & Imports
- China: New Loans
- China: M2 Money Supply
- US: NFIB Small Business Optimism
- US: ADP Employment
- US: CPI Inflation
- US: Core CPI
- Fed: Warsh Testifies
- Fed: Barr Speaks
- Fed: Goolsbee Speaks
- Fed: Cook Speaks
- Fed: Bowman Speaks
- Earnings: JPM, BAC, C, GS & WFC
Wednesday, July 15
- China: GDP
- China: Retail Sales
- China: Industrial Production
- China: House Prices
- China: Unemployment
- US: PPI Inflation
- US: Core PPI
- US: Empire State Index
- Bank of Canada Rate Decision
- Fed: Warsh Testifies
- Fed: Williams Speaks
- Fed: Cook Speaks
- Federal Reserve Beige Book
- Earnings: MS, JNJ, BLK & BK
Thursday, July 16
- UK: GDP
- US: Retail Sales
- US: Core Retail Sales
- US: Philadelphia Fed Index
- US: Initial Jobless Claims
- US: Business Inventories
- US: Housing Market Index
- Fed: Logan Speaks
- Fed: Schmid Speaks
- Earnings: NFLX, GE, ABT & PGR
Friday, July 17
- Eurozone: CPI
- US: Housing Starts
- US: Building Permits
- US: Industrial Production
- US: Michigan Consumer Sentiment
- US: Michigan Inflation Expectations
- US: Michigan Current Conditions
- Fed: Jefferson Speaks
- CFTC Positioning Report
Alpha Takeaway: Fundamentals Now Need to Lead
Markets continue entering the second half of the year from a position of strength, but the focus is beginning to shift. While resilient technicals and improving earnings expectations continue supporting equities, the next stage of the rally is likely to depend on whether corporate results and macro data can justify increasingly optimistic market expectations.
- Equities:
The broader trend remains constructive despite a return to narrower market leadership. Strong earnings expectations continue supporting valuations, but the coming reporting season will determine whether the rally can broaden beyond AI and semiconductor leaders.
- Gold & Silver:
Long-term fundamentals remain favourable as China's physical demand and continued central bank buying provide structural support. However, inflation data and evolving Federal Reserve expectations are likely to remain the key drivers of near-term price action.
- Crypto:
Bitcoin enters the week with improving sentiment as institutional adoption and regulatory developments continue supporting the longer-term outlook. Even after recent ETF outflows, the broader structural narrative remains constructive.
- Macro:
Inflation, Federal Reserve policy and geopolitics remain closely connected. This week's inflation data, Kevin Warsh's congressional testimony and the opening wave of Q2 earnings are likely to determine whether markets extend their recent resilience or pause for consolidation.
As markets move into one of the most important weeks of the quarter, the balance between strong corporate fundamentals and a more uncertain macro backdrop will become increasingly important. If earnings continue meeting expectations while inflation remains contained, the broader outlook for risk assets is likely to remain constructive.
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