PULSE Monitor：Earnings & Sentiment in Focus

Investment Rating - The report maintains a positive outlook on US equities, lifting the year-end target for the S&P 500 to 5600 and EPS estimate to $250, with a further target of 5800 for 2025 based on$270 of EPS [6][8]. Core Insights - The earnings momentum remains positive, with a beats-to-misses ratio of 4.6:1, indicating strong performance relative to expectations [5][6]. - The Levkovich Index shows a significant week-over-week decline, indicating a shift towards a more balanced sentiment, although it remains in the euphoria zone [5][25]. - The report highlights the influence of the "Magnificent 7" stocks, which have contributed to two-thirds of the S&P 500 gains this year [6]. Market Outlook - Price remains negative due to flat equity markets and a slight increase in 10-year yields, leading to cross-asset valuation imbalances [4]. - Liquidity is positive, with continued inflows into domestic equity funds and ETFs [4]. - Sentiment is negative, but there is potential for a neutral reading in the coming weeks if current conditions persist [5][6]. Sector Recommendations - Real Estate and Financials have been upgraded to Overweight, joining Consumer Discretionary, while Industrials have been lowered to Market Weight [7]. - Health Care and Materials remain Underweight, indicating a cautious stance on these sectors [7]. Earnings Performance - Over 90% of the S&P 500 has reported Q2 earnings, with aggregate EPS surprising to the upside by 2% compared to expectations [5][33]. - The report details sector-specific performance, with notable earnings growth in Consumer Discretionary and Financials [33][34]. Valuation Metrics - The S&P 500 is currently trading at a P/E ratio of 22.4, which is in the 89th percentile historically, indicating high valuations [14]. - Forward 1-year returns based on current valuation metrics suggest a median return of 6.6% for the S&P 500 [14]. Economic Indicators - The report notes that corporate preparedness for an economic slowdown and improvements in supply chains could positively impact market performance [18]. - The potential for downside surprise inflation prints without weaker macro data is highlighted as a positive market influence [18].