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Equities

S&P 500 Hits Fresh Highs as Q2 Earnings Season Opens Amid Bank Strength

Issue 19Week ending July 19, 202615 sources

S&P 5007,533.77+0.9%
S&P/TSX24,892.40+0.6%
Nasdaq25,881.95+1.2%
Russell 20002,408.15+0.3%
VIX16.73-0.9pts
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Week Ending July 19, 2026

S&P 500 Hits Fresh Highs as Q2 Earnings Season Opens Amid Bank Strength

§ 01

Key takeaways

Sectors

Financials led the tape into Q2 earnings season with banks posting strong NIM commentary, while cyclical breadth broadened into industrials and energy; TSX financials-heavy composition pushed the index to fresh records.

Style

Growth reasserted leadership as mega-cap tech and AI infrastructure names outperformed value on the week, though Canadian bank earnings kept TSX value exposure competitive versus S&P concentration risk.

Hedging

VIX eased to 16.73 in a normal regime with the term structure in contango, signaling low near-term stress, but institutions flag stretched tech valuations as the primary tail risk into Q3.

§ 02

Executive summary

Equity markets extended gains this week, with the S&P 500 closing at 7,533.77 (+0.9%) and the NASDAQ at 25,881.95 (+1.2%) as Q2 bank earnings kicked off with upbeat net interest margin commentary. The TSX Composite rose 0.6% to 24,892, buoyed by its financials-heavy composition, while the VIX eased to 16.73, remaining in a normal volatility regime. Growth outpaced value as AI infrastructure spend commentary from mega-cap tech reinforced the dominant narrative. Advisors should use this window of low volatility and broadening cyclical participation to rebalance toward targets and consider adding tactical hedges ahead of a heavier August earnings and Fed/BoC data calendar.

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Market data

weekly snapshot

QMR MARKET BRIEF

Market posture

Week ending

Overall postureConstructive

Sectors Risk On · Style Growth · Hedging Neutral

Snapshot compiled Jul 17, 2026 · source dates vary

SectorsRisk On
StyleGrowth
HedgingNeutral

Inputs used

S&P 5007,533.77+0.9% 1W
TSX24,892.4+0.6% 1W
Nasdaq25,881.95+1.2% 1W
Russell 20002,408.15+0.3% 1W
VIX16.73-0.9 pts 1W
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Sectors

15 points

Cyclical

  • Financials leadership Banks +2.1% WoW ahead of Q2 results; JPMorgan Research notes 'multi-year NIM tailwind intact as deposit costs stabilize' (J.P. Morgan Private Bank Insights, Jul 2026)
  • Energy rotation XLE +1.4% as WTI holds near $76/bbl; RBC Capital Markets pegs Canadian E&Ps at ~11% FCF yield — 'best relative value in the sector since early 2023'
  • Industrials momentum Sector +1.6% WoW on reshoring capex data; Morgan Stanley maintains Overweight, citing 'durable US manufacturing reinvestment cycle'
  • TSX cyclicals Financials (32% of TSX weight) drove the index to a fresh record; BMO Capital Markets flags Canadian banks at 10.8x forward P/E vs 13.4x for US peers — 'valuation gap remains historically wide'
  • Positioning Overweight financials and energy, neutral industrials — Goldman Sachs Research notes cyclical breadth is the widest since Q1 2025, supporting continued rotation

Defensive

  • Utilities Sector +0.2% WoW, lagging the tape as bond yields held steady; Scotiabank Global Economics notes utility yields (~3.4%) remain compressed relative to 10Y Treasuries
  • Healthcare +0.5% WoW; BofA Global Research maintains Neutral, citing 'mixed pipeline catalysts offset by defensive earnings stability'
  • Consumer Staples -0.3% WoW, underperforming on relative valuation concerns; Citi Global Perspectives flags staples trading at a 22% premium to 10-year average forward P/E
  • REITs +0.4% WoW as rate expectations stabilize; TD Securities highlights Canadian REITs offering 5.1% average yield, 'attractive carry if BoC holds through Q3'
  • Signal Defensive underperformance vs cyclicals this week confirms a risk-on tone — Wellington Management notes breadth data supports continued cyclical tilt near-term

Technology

  • Magnificent 7 Basket +1.8% WoW, still ~34% of S&P 500 market cap; Deutsche Bank Research flags concentration risk as 'the key structural vulnerability heading into Q3'
  • AI narrative Hyperscaler capex guidance reaffirmed ahead of earnings; UBS Research notes 'AI infrastructure spend remains the single largest swing factor for 2026 tech earnings'
  • Valuation Tech sector forward P/E at 27.8x vs 5-year average of 24.1x — Bank of America's Savita Subramanian calls current premium 'justified but leaving less room for multiple expansion'
  • Earnings momentum Consensus tech EPS growth of 18% YoY for Q2, per LSEG I/B/E/S consensus estimates, led by cloud and semiconductor names
  • Positioning Capital Group maintains Overweight mega-cap tech but trims position sizing ahead of earnings, citing 'asymmetric risk to high-multiple misses'
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Style

10 points

Growth vs value

  • Relative performance Growth (IWF) +1.5% WoW vs Value (IWD) +0.4% WoW, growth's third consecutive week of outperformance per FTSE Russell data
  • Valuation spread Growth trades at a 9.2-point forward P/E premium to value, above the 10-year average of 7.5 points, per MSCI factor index data
  • Earnings differential Growth cohort EPS growth of 16% YoY vs value cohort's 6% YoY, per LSEG I/B/E/S estimates, sustaining the multiple gap
  • Canadian context TSX's inherent value/financials tilt kept pace with S&P's growth-led gains this week — National Bank Financial notes 'rare instance of value keeping up amid a growth rally'
  • Institutional calls Wellington Management stays Neutral growth/value, while AQR Capital Management flags growth crowding risk as 'a headwind for forward risk-adjusted returns'

Size & quality

  • Large vs small Russell 1000 +0.9% WoW vs Russell 2000 +0.3% WoW, continuing large-cap leadership amid earnings season uncertainty
  • Quality factor MSCI Quality Index +1.1% WoW, outperforming broad market — Research Affiliates notes 'quality's profitability screen continues rewarding balance sheet strength'
  • Small cap risk Russell 2000 earnings breakeven ratio near 38%, per FactSet data; Barclays Research flags 'elevated credit sensitivity keeps small caps a higher-beta, lower-conviction trade'
  • Canadian context S&P/TSX Completion Index +0.7% WoW, outpacing large-cap TSX; RBC Global Asset Management sees 'selective mid-cap opportunities in Canadian industrials and materials'
  • Positioning Overweight quality, neutral size — T. Rowe Price maintains preference for large-cap quality over small-cap beta amid uneven earnings visibility
§ 06

Hedging

10 points

Volatility

  • VIX regime 16.73, within the 'normal' 15-20 band, down 0.9pts WoW — CBOE data shows spot vol easing into Q2 earnings
  • Term structure VIX futures curve remains in contango (Aug futures ~18.2 vs spot 16.7), signaling market complacency rather than stress, per CBOE Insights
  • Options positioning Put/call ratio at 0.78, below its 1-year average of 0.92, indicating reduced hedging demand — Goldman Sachs Research flags this as a 'contrarian caution signal'
  • Protection cost 3-month 5% OTM S&P put costs ~1.6% of notional, near the low end of the 12-month range, per CBOE options data
  • Institutional view Morgan Stanley's Mike Wilson maintains a 'volatility complacency' warning, recommending clients 'use current low VIX levels to layer in cost-effective downside protection before Q2 earnings volatility'

Tactical

  • Cash allocation BlackRock Investment Institute recommends deploying excess cash gradually, citing 'limited near-term catalysts for a pullback but stretched positioning into earnings'
  • Collar strategies For concentrated mega-cap tech holdings, Citi Global Perspectives suggests 3-month collars financed near zero-cost given elevated call skew
  • Cross-asset Stock/bond correlation remains modestly negative (-0.15 30-day), restoring some traditional diversification benefit per State Street Global Advisors research
  • Tail risk IG credit spreads holding near 92bps and MOVE index at 78, both below historical stress thresholds — Fidelity Institutional Insights sees 'no imminent credit-driven equity risk'
  • Rebalancing With growth outperformance pushing many balanced portfolios above equity targets, Vanguard recommends trimming back to strategic weights this month
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Institutional views

13 institutions

Institutional Perspectives

RBC Capital Markets

Lori Calvasina

bullish
S&P 500 Target: 7,700
Key Call: Maintains Overweight financials and energy; sees continued TSX outperformance on bank earnings strength

Goldman Sachs

David Kostin

bullish
S&P 500 Target: 7,750
Key Call: Raises year-end target on broadening earnings growth beyond mega-cap tech; flags widest cyclical breadth since Q1 2025

Morgan Stanley

Mike Wilson

neutral
S&P 500 Target: 7,450
Key Call: Cautions on volatility complacency; recommends layering in downside protection ahead of Q2 earnings season

TD Securities

bullish
Key Call: Sees Canadian REITs offering attractive carry at 5.1% yield if Bank of Canada holds rates through Q3

J.P. Morgan

Dubravko Lakos-Bujas

bullish
S&P 500 Target: 7,800
Key Call: Highlights multi-year NIM expansion tailwind for financials as Q2 bank earnings season begins

BMO Capital Markets

bullish
Key Call: Flags Canadian banks at 10.8x forward P/E, a historically wide discount to US peers at 13.4x

Bank of America

Savita Subramanian

neutral
S&P 500 Target: 7,600
Key Call: Tech sector premium (27.8x forward P/E) is justified but leaves limited room for further multiple expansion

Scotiabank

neutral
Key Call: Notes utility yields remain compressed relative to Treasuries, limiting near-term defensive rotation appeal

UBS

bullish
S&P 500 Target: 7,650
Key Call: AI infrastructure capex remains the largest swing factor for 2026 tech earnings; stays Overweight semiconductors

National Bank Financial

neutral
Key Call: Notes rare instance of TSX value keeping pace with S&P growth rally this week, aided by bank earnings

BlackRock

bullish
S&P 500 Target: 7,700
Key Call: Recommends gradual cash deployment given limited near-term pullback catalysts but stretched earnings-season positioning

Capital Group

neutral
Key Call: Maintains Overweight mega-cap tech but trims position sizing ahead of earnings on asymmetric multiple-miss risk

AQR Capital Management

bearish
Key Call: Flags growth-factor crowding as a headwind to forward risk-adjusted returns, favors quality over pure growth
§ 08

Portfolio implications

Portfolio Implications

Conservative

  • Sector tilt: Maintain defensive overweight in healthcare and REITs given compressed utility yields and stable earnings profiles
  • Factor: Emphasize quality and low-volatility tilts; MSCI Quality Index outperformance supports this positioning into earnings season
  • Hedging: Layer 3-month collars on concentrated equity positions while VIX remains near 16.7 and protection costs are low
  • Canadian: Favor TSX financials and REITs for yield and valuation support, keep US exposure hedged given tech concentration risk

Balanced

  • Sector tilt: Core/satellite approach — core in financials and quality tech, satellite allocations to industrials and energy for cyclical upside
  • Factor: Blend growth and value exposure; trim mega-cap tech overweight modestly ahead of earnings to manage concentration risk
  • Hedging: Moderate protection via S&P put spreads at ~1.6% of notional cost, financed partly through covered calls on tech holdings
  • Canadian: Maintain 30-35% TSX allocation with partial USD currency hedge given narrowing rate differential expectations

Growth

  • Sector tilt: Full cyclical exposure — overweight financials, energy, and industrials to capture broadening earnings breadth
  • Factor: Growth and momentum tilts intact, but monitor crowding risk flagged by AQR; consider quality overlay within growth sleeve
  • Hedging: Tactical, opportunistic hedging only around major earnings prints given low VIX and contango term structure
  • Canadian: Increase international allocation selectively into AI infrastructure and semiconductor supply chain names outside North America
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Key dates

6 events

Key Dates Ahead

DateEventRelevance
Jul 21Big bank Q2 earnings (JPMorgan, Goldman Sachs, Wells Fargo)Sets tone for financials-led rally; NIM commentary key focus
Jul 23US flash PMI (Manufacturing & Services)Gauge of industrial momentum supporting cyclical rotation thesis
Jul 24Canadian CPI (June)Key input for Bank of Canada rate path and TSX rate-sensitive sectors
Jul 28-29FOMC MeetingRate decision and guidance critical for growth/value and volatility regime
Jul 30Mega-cap tech earnings (Microsoft, Meta, Alphabet)AI capex guidance to drive tech sector valuation and concentration risk debate
Jul 31US Q2 GDP (advance estimate)Growth data to confirm or challenge cyclical breadth narrative
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Sources

15 sources

Sources & References