Markets have started selling the news. Combined with the impact of tariffs showing up in U.S. inflation data, this prevented the S&P 500 from holding at its record high. The broad stock index reached the 6,300 mark for the first time in history, but failed to maintain its position at the top. Another trade deal by Donald Trump — this time with Indonesia — was unable to inspire the bulls in U.S. equities to push further.

Even positive corporate earnings couldn't stop the sell-off in banking stocks. Previously, the KBW Bank Index had been outperforming the S&P 500. Investors were buying on rumors. Then came the sell-off on the facts.

Performance of the Bank Index

Interestingly, the S&P 500's surprise factor — the percentage of companies beating forecasts — has consistently been 75% over the past several quarters. Tech giants frequently exceed Wall Street's expectations, yet still often fall immediately after their earnings reports are released.

For example, Microsoft beat forecasts in 11 previous instances, but in 7 of them, its shares declined. Alphabet had a winning streak of 9 quarters, closing in the red on 5 of those earnings days. NVIDIA has consistently outperformed estimates since the launch of ChatGPT in late 2022, yet its stock still fell in three of those instances.

Investors are now selling the rumors and lowering their estimates. As of July 2024, earnings per share (EPS) for Q2 2025 were expected to increase by 14.7%. By the end of last year, this figure dropped to 11.7%. Now it's down to just 4.8%.

EPS Forecast Dynamics for S&P 500 Companies

Wall Street's behavior is understandable. Uncertainty surrounding U.S. tariffs remains extremely high. This explains the frequent revisions to forecasts for the broad stock index. In December, the consensus forecast stood at 6614 — a 13% increase projected for year-end 2025. By May, the forecast was lowered by nine percentage points — the fastest revision pace since the pandemic. In June, analysts returned to the bull camp.

The S&P 500's reluctance to rise on positive trade deal news, combined with investors' tendency to sell the news, increases the risk of a correction in the broad index. Especially since, following the release of U.S. inflation data for June, derivatives reduced the likelihood of a renewed Fed easing cycle in September, from 63% to 54%. Interest rates are expected to remain high, no matter how strongly Donald Trump calls for cuts. That's bad news for stocks.

From a technical perspective, the daily S&P 500 chart suggests the principle: if the market doesn't go where it was expected to, it's more likely to move in the opposite direction. The bulls' failure to hold above 6300 is a sign of weakness. A decline below fair value indicates the initiative is shifting to the bears. A breakout below the pivot level at 6225 would justify locking in profits on long positions and moving to short-selling.