Will Q2 earnings season be a sell-the-news catalyst for stocks broadly?

**Darius Dale** (0:00)
Happy Monday out there, Team 42 It's your skipper here, Darius Dale, to present our Macro Minute for Monday, July 13th, 2026 As always, we'll start with the executive summary from today's lead-off morning notes. Let's dive right in. Today's key macro question is, will Q2 earning season be a sell the news catalyst for stocks broadly? The short answer is the risk of this likely transitory bearish outcome is much higher than consensus currently expects because of the rising probability of negative revisions to AI CapEx projections occurring concurrently with the fit they may opt to play action pass, i.e. tight and cyclically to set up the run, i.e. ease structurally. Refer to the monetary policy section of our July 2026 Macro-Scotting Report and our July 11th Around the Horn Webcast for more details. In terms of the analytical nuance, in Korea, SK Hynix fell a record 15 percent, and Samsung Electronics shed almost 11 percent, dragging the Cospi down 9 percent today. Bucking this trend was Taiwan's semiconductor manufacturing company whose shares closed 1 percent higher today, after the company posted inline 36 percent quarterly sales growth. Five of the six biggest US banks report Tuesday opening earnings season. S&P 500 index profits likely climbed 24 percent through June per Bloomberg Intelligence. That result ranks near record highs excluding post-recession rebounds. Indeed, consensus expectations for S&P 500 sales and earnings growth continue to boom especially when we compare robust expectations for S&P 500 earnings in the third quarter of 2022 and third quarter of 2022
The current expected three-year forward CAGR of S&P 500 earnings per share equals 15 percent. This level makes absolutely no sense for an economy that is not emerging from recession. The trailing three-year average growth rate of S&P 500 earnings equals 14 percent, which compares to three percent in the third quarter of 2022 or third quarter of 2000 into, my apologies, minus two percent in 4Q09 and six percent in 1Q2021. What do those growth rates and time periods have in common that is not shared by the current dynamic? Well, I'll tell you right now if you guessed those were emerging from recession and this is not, you've guessed correctly. All told, Wall Street is betting that AI is transformational for corporate profitability on an accelerated timeline that justifies the concentration risk in investors' portfolios.
Are we in a bubble?
Yes.
Yes, we're in an AI bubble according to the historic allocation to stocks on the US household sector balance sheet and the historic concentration of related sectors in the US and global stock markets. Does being in an AI bubble mean investors should immediately sell stocks? No. The most optimal time to sell is when Kiss and Dr. Mo began selling.
Elsewhere, Fed Chairman Kevin Warsh testifies before Congress Tuesday and Wednesday for the first time as Fed Chair. It coincides with Tuesday's June CPI, Wednesday's June PBI releases. Forecasters expect both to show relief after recent price spikes. Still, the two-dominal treasury yield reached an early 2025 peak amid rising energy prices, stoking Fed rate hike bets. Fed Funds futures are now pricing in a hike on September 16th and another hike on January 27th of next year. So as always, we'll wrap up with a question from our community. This one's titled New to 42 Macro.
I'm trying to understand the round the horn. Dr. Mo says, hi, I'm new to 42 Macro and excited to learn. As a lifelong small business owner, understanding the markets was a low priority. I'm now in a different phase and have more time. Well, that was wonderful. Sounds like you did well. So congratulations to you, my friend.
I'm strictly following Kiss until I don't have to, stop the around the horn video to look up a term. I want to hear DD explain the concept over. When DD talks about Dr. Mo and a long max position, I understand that to be a small percentage of the total portfolio, the investor wants more exposure to them kiss. Long half is just the same position, cut in half. That is correct. What does DD say, I mean by short max position, for instance, in the reflation market regime bills is a short max position. Can someone explain what this means practically? Again, I'm happily following Kiss and so I'm not trying to get out over my skis. I just want to grow in knowledge. So excellent question. Happy to help here. So the first thing I'll say is there are five different conditions. What Dr. Mo is, is a risk management overlay for investors who are not following the standard Kiss model portfolio. So obviously all of our professional investor clients, we have hedge funds, mutual funds, insurance funds, pension funds, family offices, investment advisors, those are the types of professional clients we serve. And then obviously we serve thousands of retail investors around the world as well, with the same signals, the same tools. Everyone has access to the same information. They just go to the buffet and pick up what they want and put it on their tray as for their own investment preferences and risk tolerance, et cetera. So what Dr. Mo does is it allows investors to customize outside of the standard case, which we know is, when it's fully invested, 60% stocks, 30% gold, 10% Bitcoin, obviously it's not fully invested at the current juncture in terms of the reduction in risk, the sidestepping of risk that we've effectively done in gold and Bitcoin. And so investors are using Dr. Mo, which has features, which has proper trade signals across 70 plus, I want to say it's about 80, maybe it's even 80, but about 80 different factors at this point across US equity sectors, equity factors, geographies, fixed income sectors, and macro exposures. And so there's five different conditions that an asset can be in from the perspective of Dr. Mo in terms of the risk management, in terms of the signal, the proper trade signal that Dr. Mo produces. So let's just look at our, from Bitcoin here as an example. And so what Dr. Mo was designed to do is to tell you exactly what you should be doing in your portfolio as it relates to how much risk you want to take at the position sizing level. That's a choice that you need to make. So Dr. Mo will say, hey, it's a good time to be a long max position in a particular asset. Dr. Mo will also say it's a good time to be a long half position in a particular asset, long max position being the dark green here, long half position being the light green there. Dr. Mo will tell you it's a good time to be no position in the asset. And Dr. Mo will also tell you if it's a good time to be a half position, half short position in an asset or a full short position in an asset, which would be the red or the orange bars in these charts. And so how does Dr. Mo determine those proper trade signals? It's a combination of incorporating our market regime, now casting process to determine the target exposures and the volatility targeting for each of these assets in terms of orienting the delta of the signal. And then the bottom up percentage of Novel A into Dr. Mo and Kiss is the volatility-adjustable momentum signal for the asset itself. So obviously, if the asset is the volatility-adjustable momentum signal is confirming what the Dr. Mo regime orientation is suggesting, then you're going to have a max position either to the long side or short side. And if the volume signal is neutral, then you're going to have a half position either to the long side or short side. And then obviously, when the signals are incongruent, i.e. let's say you got a bearish signal in Bitcoin and in a bullish market regime as we currently are in, then Dr. Mo will recommend no position because again, you're not getting that confirmation from a top-down and bottom-up percentage of a Novel-A perspective from a vault targeting and dynamic position sizing perspective. So hopefully that's helpful. And so obviously, long half position, long short half position, long max position, short max position, no position. You still have to make, as an investor, as a DIY investor, you have to determine exactly what your max position is for any given asset or asset class before you can actually effectively use this analysis. We can't determine that for you.