The kickoff to earnings season for the Mag 7 didn’t start well last night as Alphabet (GOOGL) and Tesla (TSLA) traded lower in reaction to earnings. GOOGL is currently down just over 4% while TSLA is down around 8%. In terms of ‘typical’ reactions to earnings, the 8% decline in TSLA is more ‘normal’ as the stock typically moves up or down around 8% in response to earnings while GOOGL’s average one-day move in reaction to earnings is a bit over 5%. The weakness in these two stocks has dragged futures lower with the Nasdaq leading the way with a decline of just over 1% while the S&P 500 looks to open down by about 0.70%. For now, small caps are holding up better with the Russell 2000 looking to open down by 0.40%.

Given the weakness in equities, treasury yields are lower with the biggest moves at the short end of the curve. Oil and gold, however, are higher, along with bitcoin which is back above $66K. On the economic calendar this morning, we’ll have Wholesale Inventories at 8:30 followed by flash PMI readings from S&P 15 minutes after the open, and New Home Sales at 10 AM Eastern.

Many of the equity market trends in place for months reversed in the last couple of weeks. Small caps took over the leadership from large caps, value outperformed growth, homebuilders outperformed semis, etc. Along these lines, since international stocks have underperformed the US for what seems like forever, we would have expected to see them get a lift during this turnaround period. That hasn’t been the case.

The chart below shows the relative strength of the S&P 500 versus Europe’s STOXX 600 (on a dollar-adjusted basis) over the last twelve months. In the chart, a rising line indicates outperformance on the part of US stocks and vice versa for a falling line. While US equities aren’t quite at their highest levels in a year relative to the STOXX 600, they are very close, and there hasn’t been any reversal of the trend of outperformance that has been a place. A pause? Maybe. But not a reversal.

The chart below shows the relative strength of the S&P 500 versus the STOXX 600 dating back to 2000. Again, there has been no reversal of US outperformance relative to European stocks. In mid-June, the S&P 500 broke above the prior relative performance peak from September 2022, and as recently as last week, the S&P 500’s relative strength hit a new peak.

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