The State of Markets: “Equities Overbought (Relative to Bonds)”
By Thursday’s close key US markets were eking out small gains for the week. The S&P500 was 0.6% higher on the week; the Dow Jones was up by 0.3%; while the NDX100 had fared better (+1.3%). By half way through the session on Friday, those markets were modestly lower (basically flat). US earnings, which began in earnest this week, have been a key factor pushing markets, and single names, higher. Key banks have been mostly beating expectations, along with high profile stocks like Netflix. With that (modest) strength in the S&P500 and NDX100, both markets have (just) broken out to the upside of their recent multi week trading ranges (i.e. from the first half of July).
Equities, though, are notably overbought relative to bonds (see chart below). In recent quarters, that’s been an effective indication that the equity rally is due a ‘breather’ (or indeed ‘some giveback’). The BAML FMS this week appeared to confirm that sense (i.e. ‘the market is due a breather’), reporting that there has been: ‘a record surge in risk appetite in the past 3 months’ (source: BAML FMS, July 2025).
Next week, the US quarterly earnings season continues with a large number of companies reporting. Key features include earnings from Alphabet and Tesla (both Wednesday); an ECB policy meeting (Thursday), which will be preceded by the ECB Bank lending survey (i.e. credit conditions on Tuesday). Elsewhere there’s a housing theme in the US with both existing home sales and new home sales out this week (Wed & Thurs). In the UK, it’ll be all eyes on the public finances data update, due Tuesday (given the concern about a potential UK fiscal crisis). Flash PMIs from across the globe will also be watched closely (on Thursday).
Key chart: Medium term RSI (equities relative to bonds) vs. S&P500
Upcoming important data/events this week:
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Events: |
China policy decision (Mon, 2am); ECB Bank Lending Survey (Tues, 9am); speech by BOJ Deputy Governor Uchida in Kochi (Wed, 2:30am); ECB policy decision (Thurs, 1:15pm) followed by Lagarde press conference. |
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Monday: |
US Conference Board leading index (June, 3pm). |
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Tuesday: |
UK public sector finances (June, 7am). |
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Wednesday: |
US existing home sales (June, 3pm); Eurozone consumer confidence (July first estimate, 3pm). |
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Thursday: |
Manufacturing & service sector PMIs for Australia (12am), Japan (1:30am), France (8:15am), Germany (8:30am), Eurozone (9am), UK (9:30am) & US (2:45pm) – all July first estimates.
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Friday: |
US durable goods orders (June first estimate, 1:30pm); Eurozone M3 money supply, including monthly loans to businesses and households (July, 9am). |
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Key earnings: |
Coca-Cola, Philip Morris, Texas Instruments (Tues); Alphabet, Tesla, IBM (Wed); SK Hynix Inc, Blackstone, Honeywell, BNP Paribas, Lloyds Bank (Thurs). |
Key Research
Longview on Friday, 18th July 2025:
“Where to Allocate -> US & EZ Small/Mid-Caps vs. Large Caps; PLUS UK Labour Market –> How Bad Is It?”
Small and mid cap equities are increasingly becoming a focus of conversations with clients – and rightly so.
For the past 3 or so years (since the 2022 rate hiking cycle), money has been tight across Western economies. That has resulted in the absence of an industrial cycle, weak housing cycles (especially in the US), and a challenging business environment for small and medium sized businesses (see 2nd July Monthly Asset Allocation report for further analysis: “US Small & Mid Caps: Buy Case Brewing A.k.a. (still) a Two Tier Economy”).
As a result small, mid & large cap earnings growth (across most of the West) has been largely non-existent. The UK stock market’s consensus forward earnings has been flat since 2022; in Europe it’s been the same; while Chinese earnings have shrunk since 2021 (indicative of their balance sheet recession dynamic) – FIG 8 in appendix.
Key North American macro data & events:
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Events: |
Fed's external communications blackout begins (Mon); Fed's Powell gives welcome remarks at regulatory conference (Tues, 1:30pm). |
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Monday: |
US Conference Board leading index (June, 3pm). |
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Tuesday: |
US Philadelphia Fed business outlook (July, 1:30pm); US Richmond Fed manufacturing index (July, 3pm). |
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Wednesday: |
US existing home sales (June, 3pm). |
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Thursday: |
Canadian retail sales (May, 1:30pm); US weekly jobless claims (1:30pm); Chicago Fed national activity (June, 1:30pm); US S&P manufacturing & service sector PMIs (July first estimates, 2:45pm); US new home sales (June, 3pm); US Kansas City Fed manufacturing sector activity (July, 4pm). |
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Friday: |
US durable goods orders (June first estimate, 1:30pm); US Kansas City Fed service sector activity (July, 4pm). |
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Key earnings: |
Verizon, Roper Technologies, NXP (Mon); Coca-Cola, Philip Morris, Rtx Corp, Texas Instruments, Intuitive Surgical, Danaher, Chubb, Lockheed Martin, Sherwin-Williams, Capital One Financial, Northrop Grumman, General Motors, PACCAR (Tues); Alphabet, Tesla, T-Mobile US, IBM, ServiceNow Inc, AT&T, Thermo Fisher Scientific, NextEra Energy, GE Vernova LLC, Boston Scientific, Amphenol, CME Group, Fiserv, Moody’s, General Dynamics, O’Reilly Automotive, Chipotle Mexican Grill, Hilton Worldwide, Waste Connections, Freeport-McMoran, CSX (Wed); Blackstone, Honeywell, Union Pacific, Intel, Loblaw Companies, Newmont Goldcorp, Digital, Nasdaq Inc (Thurs); HCA, Aon, Charter Communications (Fri). |
Fig B: US Conference Board Leading Index (Y-o-Y %)_
Key European macro data & events
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Events: |
ECB Bank Lending Survey (Tue, 9am); ECB policy decision (Thurs, 1:15pm), followed by Lagarde press conference (Thurs, 1:45pm); ECB Survey of Professional Forecasters (Fri, 9am). |
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Monday: |
N/A |
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Tuesday: |
French retail sales (June). |
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Wednesday: |
Eurozone consumer confidence (July first estimate, 3pm). |
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Thursday: |
Eurozone new car sales (June, 5am); German GfK consumer confidence (Aug, 7am); French business confidence (Jul, 7:45am); Spanish PPI (June, 8am); Spanish unemployment rate (Q1, 8am); HCOB manufacturing & service sector PMIs for France (8:15am), Germany (8:30am) & Eurozone (9am) – all July first estimates. |
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Friday: |
French consumer confidence (July, 7:45am); German IFO business climate (July, 9am); Eurozone M3 money supply, including monthly loans to businesses and households (July, 9am); Italian consumer & manufacturing confidence (July, 9am). |
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Key earnings: |
UniCredit (Tue); Equinor, Iberdrola, Thales (Wed); TotalEnergies SE, BNP Paribas (Thurs). |
Fig C: Eurozone consumer confidence (index)
Key UK macro data & events
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Events: |
N/A |
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Monday: |
UK Rightmove house prices (July, 12:01am). |
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Tuesday: |
Public sector finances (June, 7am). |
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Wednesday: |
N/A |
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Thursday: |
S&P manufacturing & service sector PMIs (July first estimates, 9:30am); CBI industrial trends survey (June, 11am). |
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Friday: |
Gfk consumer confidence (July, 12:01am); Retail sales (June, 7am). |
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Key earnings: |
Relx, Lloyds Banking (Thurs). |
Fig D: UK S&P manufacturing & service sector PMIs
Key Asia-Pacific macro data & events
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Events: |
Japan House of Councillors Election (Sunday); China policy decision (Mon, 2am); market holiday in Japan on account of Marine Day (Mon); RBA minutes from July policy meeting (Tues, 2:30am); speech by BOJ Deputy Governor Uchida in Kochi (Wed, 2:30am); speech by the RBNZ's Conway on tariffs & the economy (Thurs, 2:30am); speech by the RBA’s Bullock (Thurs, 4:05am). |
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Monday: |
N/A |
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Tuesday: |
N/A |
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Wednesday: |
Australian Westpac leading index (June, 1:30am); Japanese machine tool orders (May final estimate, 7am). |
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Thursday: |
Australian S&P manufacturing & services sector PMIs (July first estimates, 12am); Japanese Jibun Bank manufacturing & services sector PMIs (July first estimate, 1:30am). |
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Friday: |
Japanese ESRI leading index (May final estimate, 6am). |
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Key earnings: |
Samsung Biologics (Wed), SK Hynix Inc (Thurs). |
Fig E: Japanese Jibun Bank manufacturing & services sector PMIs
This week:
Longview on Friday, 17th July 2025:
“Where to Allocate -> US & EZ Small/Mid-Caps vs. Large Caps; PLUS UK Labour Market –> How Bad Is It?”
Global Macro Report, 15th July 2025:
Daily Dose of Macro & Markets This week:
Daily Dose of Macro & Markets 18th July 2025:
“Britain – Is There Any Hope?”
Daily Dose of Macro & Markets 17th July 2025:
“The Next China Shock”
Daily Dose of Macro & Markets 16th July 2025:
“US Inflation: ‘Something for Everyone’”
Daily Dose of Macro & Markets 15th July 2025:
“Fiscal Crisis?”
Weekly Risk Appetite Gauge:
'Weekly Risk Appetite Gauge', 14th July 2025:
“Consolidating? Or Rolling Over?”
Last week:
Longview on Friday, 11th July 2025:
“Small & Midcap Equity Indices: US vs. Europe”
Longview 'Tactical' Alert No. 92, 10th July 2025:
“Remain ‘Tactically’ Cautious Equities: Summer Turbulence Ahead”
The SHORT VIEW (& market positioning), 8th July 2025:
“SELL YEN (& BUY USD, EUR or CHF)”