Stocks priced for ‘sunshine and rainbows’ now face earnings test

The US earnings season kicks off with Goldman Sachs and JPMorgan reporting Tuesday, with S&P 500 profits expected to rise 24 percent in Q2, among the best readings outside of recession recoveries. However, the rally feels fragile as the Magnificent Seven have gained just 3.2 percent year-to-date, and high valuations leave little room for error amid sticky inflation, rising energy costs, and growing odds of Federal Reserve rate hikes. Investors are watching for AI-related guidance from major tech spenders including Alphabet, Amazon, Meta, Microsoft, and Oracle in the coming weeks.