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US stocks have continued their exhilarating ascent, building on record highs as Federal Reserve Chair Jerome Powell's second day of testimony on Capitol Hill keeps the hopes of a September rate cut alive and kicking.

Tesla has hit its 11th consecutive daily gain on what can only be called a triumphant "hump day." Elon Musk's electric car juggernaut is once again the poster child of a narrow, tech-driven rally that seems to have an unquenchable thirst for upward momentum.

Amid the market’s buoyant mood, all roads lead to the eagerly awaited US Consumer Price Index (CPI) report, set for release later today. The June report is expected to show an annual change of 3.1%, a slight moderation from May's 3.3%. With Fed funds futures currently suggesting a 70% chance of a rate cut at the Federal Reserve's September meeting, according to CME FedWatch, investors seem to agree. And let’s not get too comfortable; rate-cut expectations have swung more wildly this year than a pendulum in a windstorm, and a surprise inflation spike could jolt projections and send asset prices tumbling. As usual, before any significant market-moving event, we are back to the high-stakes game of “Guess the Future.”

Across the Atlantic, the topic of rate decisions is equally hot. Bank of England Chief Economist Huw Pill has dampened hopes for an August interest rate cut, citing persistent price pressures in Britain’s economy. The Bank of England is not ready to break out the party hats.

On the other side of the globe, New Zealand’s central bank kept its cash rate steady on Wednesday but left the door open for future monetary easing, provided inflation behaves.

In China, the mood is less celebratory. Concerns about deflation and weak demand linger, as recent data showed that consumer prices grew for the fifth consecutive month in June but failed to meet expectations. Following the release, Chinese shares dipped, with the blue-chip CSI300 index slipping 0.3%.

Meanwhile, Japan is riding a wave of optimism. The Nikkei index closed up 0.6% at a record high, thanks to a weaker yen and accommodating monetary policy. Japan’s market is running on rocket fuel, with its impressive 2024 streak showing no signs of fatigue.

Earnings Season: The Big Show

Earnings season is upon us, and analysts are bracing for a 9% year-over-year aggregate EPS growth, the highest since Q4 2021. Corporate America appears poised to clear this high bar, suggesting that earnings season might not be the catalyst the market bears are anxiously awaiting. The so-called "AI 5" (Alphabet, Amazon, Meta, Microsoft, and Nvidia) boasts an impressive 17% sales growth. The real question is, what's already "priced in"? And let’s be honest, there’s a steep drop if any AI heavyweights deliver a “bad” guide.

Still, bearish narratives have been so disastrously wrong —case in point: J.P. Morgan's Michael Wilson. In a classic flip-flop, Wilson, who advised steering clear of the S&P 500 in May, turned bullish in June but is now getting cold feet again in July. Surprise, surprise!

With everyone hopping back on the concentration risk bandwagon, another Wall Street voice joins the chorus of correction predictions. Wilson warns traders to brace for a significant pullback amid uncertainty around the US presidential campaign, corporate earnings, and Federal Reserve policy.

In a recent Bloomberg TV interview, Wilson stated, “I think the chance of a 10% correction is highly likely sometime between now and the election.” He added, “The third quarter is going to be choppy.” ( interview video)

However, for the first time in this rally, I think the equity market's behaviour looks fragile, resembling a runner who’s sprinted to record heights and is now gasping for “breadth.” As all runners, including yours truly, know, when you hit the wall, you become disoriented and giddy and then, quite possibly, end up losing your lunch. Will stocks do the same? The outcomes seem binary—the market either broadens out, or we end up with a bubble, which very well could be the equivalent of a runner hitting the wall.

In the grand, unpredictable marathon that is the stock market, only time will tell if we're in for a stumble or a spectacular leap forward.

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