Title: Q2 Earnings Season Recap: Bulls Dominate, Rate Cuts Could Boost Financials, Big Tech Overspending on AI

As the Q2 earnings season wraps up, companies are seeing growth in revenue and earnings per share, with an overall EPS increase of 10.9%. Despite market fluctuations, the S&P 500 remains positive, showing a 3% return over the past two months. Optimism persists in the macroeconomic landscape, with a low 20% probability of recession according to Goldman Sachs.

Key Takeaways:

1. Earnings Season Favoured the Bulls:
Companies have exceeded EPS and revenue forecasts, surpassing 5-year and 10-year averages. Financial institutions and utilities have shown impressive results, but consumer caution is rising due to inflation and economic uncertainty.

2. Rate Cuts Could Boost the Financial Sector:
The financial sector is anticipating rate cuts to maintain positive performance after enjoying rising interest income during the interest rate hike cycle. With banks passing stress tests, a broad-based Fed pivot could help sustain growth.

3. Is Big Tech Overspending on AI?
Big Tech’s heavy investment in AI is causing concerns, with companies like Alphabet spending significantly on upgrades. Despite beating forecasts, Alphabet’s stock fell due to high capital spending on AI. Nvidia’s upcoming quarterly results will be closely watched next week.

In summary, the Q2 earnings season has been positive for investors, with companies exceeding expectations and sectors like financials poised for growth. However, caution is advised as consumer spending may be impacted by inflation and economic uncertainty. Keep an eye on Big Tech’s AI investments and upcoming earnings reports for potential market shifts.

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