Ahmad Assiri
SPX has broken above 6,300 as US stocks keep pushing higher. Amazon and Alphabet led the session leg higher ahead of their Q2 earnings, giving the impression of a garden-variety momentum surge. Look closer, however, and the tape is telling a different story it appears, capital is rotating toward high quality names. With valuations already stretched, investors increasingly demand operating returns robust enough to justify today’s lofty multiples, and confirm the upbeat tone despite macro sceptics, or risk a re-rating.
A subtle shift in risk appetite
‘Equities only move in one direction, up.’ I recently saw this quip circulating and took it as a timely reminder to reassess risk tolerance. The price action suggests a quiet filtration process, lower‑quality names are beginning to feel less buying interest to chase higher, while companies boasting resilient cash flow and wide profit margins are attracting fresh inflows. Such shifts often herald a broader change in investor behaviour, one that leans on selective quality or, for some defensive even as headline indices press to new highs.
Dollar continued weakness
A synchronous move in FX is reinforcing the narrative. The US Dollar Index DXY has sliced once again below the key 98 handle, extending a decline of more than 10 % in H1. This is about more than real yield differentials and forward policy pricing. Fundamental questions around Federal Reserve independence have reemerged in the conversation after conflicting comments from the Administration about Chair Jerome Powell’s future last week and it still has left the scene.
\While the White House denied an actual intention to remove Powell, the mere prospect of political interference has revived the risk premium discussion. Should markets sense that monetary policy is being steered from the Oval Office, funding costs could rise, hardly the outcome the Treasury desires. One tongue-in-cheek solution, keep certain figures away from social media when the Fed is in focus – that should make things better on this front.
Treasuries have already begun to price that uncertainty. 30-year yields now at 4.94 % from 4.88% a few days ago, the 10-year now trades near 4.37 % a notch higher vs. last week, both showing a modest but noticeable risk repricing. If political rhetoric around the Fed intensifies or if next week’s FOMC meeting (where rates are expected to stay on hold) becomes a platform for renewed threats, bond market nerves could flare up again. I’m afraid that will probably resurface again. Keeping Truth Social away from a too frequent user never caused a sell-off in treasuries!
Gold, dormant for much of the month, clustered around its 20 day moving average, has jolted awake. XAUUSD burst through the upper end of its recent $3,300 – 3,370 range and accelerated toward $3,400 per ounce. The inverse dollar gold correlation provided the spark, but the deeper driver is hedging demand amid creeping doubts over Fed autonomy moving into next week’s FOMC meeting. Traders are eyeing $3,440, the late‑June high, as the next near-term waypoint.
In short, big tech enthusiasm continues to power US equity indices higher, yet the market is effectively pricing perfection. Anything short of stellar earnings could provoke a degree of volatility. At the same time, a quiet flow migration toward high quality and away from high‑beta names signals a nascent shift from outright risk seeking to a more balanced positioning.
A softer dollar has revived gold’s appeal, making the traditional dollar-gold see‑saw more conspicuous. Against a backdrop where politics and policy intersect, investors are redrawing their hedging maps with finer detail. A look ahead suggests the rally rolls on, but under the surface, the market is recalibrating its compass.
