Facts:
- Despite increasing geopolitical and economic tensions, U.S. indices remain near historical highs, leaving room for a correction.
- The decline in the projected earnings per share (EPS) for the end of the calendar year 2025, after the first 40 days of the earnings season, is the largest since 2023.
- On Wednesday, after the market closes, Nvidia will publish its quarterly results. Investor expectations are high, as evidenced by the results of other Big Tech companies. A negative surprise could trigger a larger wave of selling, maintaining negative sentiment around the stock.
Recommendation:
Short position at market price
- TP: 20600
- SL: 22400
Opinion:
Market sentiment in equities remains exceptionally positive despite increasing geopolitical, global trade, and economic risks. On Friday, PMI data from the U.S. and consumer sentiment from the University of Michigan report were released. Both indicators are leading indicators, reflecting business and consumer sentiment in the coming months. In both cases, the data brought negative surprises, with the PMI particularly disappointing in the services sector. Weak data confirm the real impact of Trump’s policies on the economy, while rising inflation expectations are influencing the Fed’s hawkish stance.
The U.S. earnings season also does not provide clear hope for continued growth momentum. So far, 429 companies from the S&P 500 index have reported results, with 77% beating EPS expectations, 17% reporting lower-than-expected results, and 6% reporting results in line with expectations. Long-term EPS forecasts for 2026 have also been revised downward by -0.58%. This is the largest decline for the next calendar year since 2023 and, excluding 2023, the only decline in the past five years.
While we believe that the fundamentals of U.S. companies are currently strong, high valuations leave little room for continued growth. At the same time, the combination of the aforementioned risks creates conditions for a market correction. We recommend taking a short position at the market price on US100, with a stop-loss order in place to minimize the risk of loss.
Methodology and assumptions used:
The recommendation was based on technical analysis of the chart and price action of US100. The target level and stop loss order were placed in the zone of previous price reactions of supports and resistances.
Source: xStation 5
