Inflation rates are declining, and the anticipated recession has not materialized, painting a positive outlook for economic and earnings growth. This optimistic scenario is favorable for riskier assets, especially equities. However, it’s important to note that current market valuations have largely priced in these positive outcomes, leaving minimal room for risk considerations.

August is expected to maintain the status quo in terms of policy changes. However, recent US data releases support the possibility of the central bank beginning to ease its policies gradually from September. This suggests that an emergency interest rate cut cycle might be avoided, thanks to strong domestic demand as evidenced by the robust Q2 GDP figures.

In Europe, economic activity is showing signs of recovery, with second-quarter GDP figures surpassing expectations due to resilient expansion in key countries, despite a surprising contraction in Germany. However, inflation in the eurozone has risen to 2.6%, up from 2.5% in June, raising concerns about the feasibility of potential interest rate cuts by the ECB in September.

The Q2 earnings season has kicked off, and while major players within the “Magnificent 7” have faced severe market reactions, dragging down major indexes, the broader picture is more optimistic. The remaining SP 500 members are on track for over 10% EPS growth year-over-year, with approximately 80% beating expectations. Sectors such as financials and healthcare are particularly exceeding forecasts, indicating a stronger-than-expected earnings season overall.