After massive rallies off the early-April lows, the major US equity indices are bumping against potentially crucial resistance. Pre-opening, futures are strong, reacting to the agreement between the US and China to slash tariffs; small-cap reaction will be a big tell.

By last Thursday, 86 percent of S&P 500 companies were done reporting their March-quarter results, with blended earnings coming in at $58.75, down significantly from $60.17 from a week ago. When the quarter ended, the sell-side was expecting $59.37. In fact, these estimates were as high as $64.59 last July.

The downward revision trend also holds true for the year, as well as next year. Last July, these analysts were expecting $277.86 for this year; last Thursday, this stood at $257.92. Similarly, early this year, 2026 was expected to bring home $310.02, which is now revised lower to $298.15 (Chart 1).

Estimates probably are very high for both this year and next. The sell-side does tend to have a habit of starting out optimistic and then reduce numbers as the year progresses. In 2024, $233.36 was rung up, versus a high of $246.31 expected back in March 2023. Earnings grew 9.3 percent last year. This year, they are expected to grow 10.5 percent. The adverse effects of the Donald Trump administration’s tariff policy are yet to reverberate through the economy. If sell-side estimates come through, earnings would have grown 15.6 percent next year; this is too unrealistic.

Until mid-February, the S&P 500 was acting as if these estimates were within reach; on the 19^th that month, the large cap index ticked a new intraday high of 6147 before sellers took over. By the 7^th of April, 4835 was tagged intraday, down 21.3 percent. That low successfully tested dual support – a rising trendline from the lows of March 2020 and horizontal going back to December 2023 (Chart 2). A rally ensued.

Last Thursday, the S&P 500 touched 5720 intraday, up 18.3 percent from the April low, before closing the week down 0.5 percent to 5660. At 5660s rests horizontal resistance dating back to last July.

Pre-market today, futures are strong, up 2.8 percent at the time of writing this, reacting to a deal reached between the US and China to slash trade tariffs for 90 days. If these gains hold in the cash market, equity bulls will not only have easily taken care of 5660s but also the 200-day moving average (5748). In this scenario, it will be interesting to see how things unfold at 5830s. If the price does get there, the index would have rallied north of 20 percent from the April low, pushing it further into overbought territory.

The Nasdaq 100 similarly is up 3.8 percent in the futures market. If this holds in the regular hours, the tech-heavy index would have easily pushed past horizontal resistance at 20500s. This also coincides with trendline resistance from the lows of October-December 2022 (Chart 3).

Earlier, from the February 19^th all-time high of 22223 through the April 7^th low of 16542, the Nasdaq 100 tanked 25.6 percent. A rally soon followed, and it has been a powerful one.

It is very possible today’s pre-opening strength will be used as an opportunity to tactically sell – if not right away, selling pressure can develop as the week wears on. Small-cap action will be a big tell.

By nature, small-cap companies tend to have a larger exposure to the domestic economy than their large-cap cousins, which also have foreign exposure. Investors are likely to use these stocks to express if the US-China deal hammered out this morning will have the staying power and if this is enough to save the US economy from softening meaningfully.

Last week, the Russell 2000 closed at 2023, having tagged 2040 at Thursday’s high. Through that high, the small cap index rallied 17.7 percent from the April 9^th low of 1733.

For nearly two years through December 2023 the index was rangebound between 1700 and 1900 before breaking out. It then went on to post a new all-time high of 2466 on November 25^th last year, edging past the prior high of 2459 from November 2021. The index then went on to lose 29.7 percent through the April 9^th low. The 1700 support held, and the subsequent rally helped the Russell 2000 recapture 1900.

If today’s pre-opening gains hold, the Russell 2000 has a shot at 2100, which in the past has attracted bulls and bears alike going back to January 2100 (Chart 4). What happens here will not only telegraph a message about small-caps but large-caps as well.

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