Wall Street enters a new trading week with momentum from last week's gains, as the Dow Jones Industrial Average climbed approximately 2%, the S&P 500 advanced 1.8%, and the Nasdaq Composite added 2.1% ahead of the Independence Day holiday. Markets closed early Thursday and remained shut Friday, but the underlying trends signal a market still driven by technology while energy presents an intriguing valuation disconnect.
Earnings revisions paint a mixed picture
FactSet Research Systems now projects S&P 500 second-quarter profit growth at 23.3%, a significant upward revision from the 18.8% estimate on March 31. The energy sector stands out with the widest gap between earnings expectations and stock performance. Since the end of March, energy earnings estimates on a dollar basis have surged 49.8%, yet the sector's price has dropped 14.5%—a gap of 64.3 percentage points. In contrast, information technology earnings estimates rose 9.9%, while the sector price gained 29.2%, reflecting a 19.3-point premium.
This divergence matters because much of the tech profit growth is already priced in. Energy, however, still trades at a discount. FactSet data shows the energy sector carries a forward 12-month price-to-earnings ratio of 12.4, compared to the S&P 500's 20.4 and its 10-year average of 19.0. Joe Mazzola, head of trading and derivatives strategy at Charles Schwab, told Reuters he is watching to see whether market broadening continues or if a tech pullback could drag the entire market lower.
Key events on the calendar
This week brings several important catalysts. The Federal Reserve will release minutes from its June meeting, the first chaired by Kevin Warsh, on Wednesday. Investors will scrutinize the document for clues on how hawkish policymakers might become. Matthew Miskin at Manulife John Hancock Investments said market participants are looking for just how much more restrictive the Fed could get. James Ragan at D.A. Davidson warned that if the Fed sounds more restrictive, it could threaten valuations and the broader market.
On the earnings front, Delta Air Lines and PepsiCo are among the first S&P 500 companies to report second-quarter results. FactSet notes that only three S&P 500 firms are scheduled to post numbers this week. Nike has already boosted the index's Q2 estimate after beating earnings expectations. Technology remains the market's primary driver, with semiconductors and related equipment accounting for the largest share of tech earnings growth. Excluding that subsector, the sector's projected earnings growth drops from 63.3% to 25.7%.
Economic data and oil markets
June payrolls rose by just 57,000, and the unemployment rate came in at 4.2%, according to the Bureau of Labor Statistics. Following the data, CME Group's FedWatch tool placed the implied probability of the Fed holding rates at its September 15-16 meeting at 46.8%, up from 35.8% the day before. The ISM services report, due Monday, will draw attention for its prices and jobs components given the weak payroll numbers.
Oil markets are also in focus after OPEC+ announced Sunday it would lift output targets by 188,000 barrels per day starting in August. Brent crude was near $72 on Friday, well off highs above $120. UBS analyst Giovanni Staunovo said traders are monitoring how many tankers pass through the Strait of Hormuz and how demand and Chinese crude imports evolve.
With a relatively thin calendar, the week's tests center on services data, Fed minutes, and early earnings from Delta and PepsiCo, which will provide updates on travel demand and packaged food pricing. The energy sector's earnings calls will also be closely watched following the OPEC+ quota increase.
