A Long-Awaited Summit Between Washington and Beijing
After being postponed because of the war in Iran, the long-anticipated meeting between the U.S. and Chinese presidents is finally set for next week. Both governments are walking a delicate line — projecting strength on the world stage while preserving a relationship that, for all of its frictions, remains mutually beneficial. The contradictions in Beijing's posture illustrate the difficulty of that balance: on one hand, China has reportedly directed its companies to ignore U.S. sanctions; on the other, it has quietly advised its banks to pause new loans to U.S.-sanctioned refiners.
Beijing has been reluctant to wade deeper into the Iran conflict, and so far it has weathered the situation better than many expected. Yet the fundamentals work against prolonged neutrality. With the Strait of Hormuz effectively closed, the longer the conflict drags on, the more inevitable the economic consequences become. Next week's summit may produce some headline purchase agreements — a delegation of U.S. CEOs is expected to travel along with the president — and there will likely be discussions about access to advanced chip technology and rare-earth supplies. But the broader purpose of the meeting is more modest: to keep the peace on trade. The current truce is in place only through the fall, so simply preventing escalation may be the most important deliverable.
A Goldilocks Jobs Print and a Strong Earnings Season
Markets received an encouraging signal from the latest non-farm payrolls report, which showed 115,000 jobs added against expectations of around 65,000. Just as importantly, wage pressures did not rise — a development that may not thrill workers but does ease inflation expectations and could give the Federal Reserve more room to focus on the employment side of its dual mandate. Futures jumped on the release, and the print provided a useful buffer against the more nervous narratives that have been circulating.
Earnings have reinforced the bullish tone. Roughly 85% of reporting companies have beaten expectations, and earnings growth is tracking near 25%. Strip the numbers down, however, and the engine of that performance becomes clear: technology and the mega-cap leaders are doing the heavy lifting. Among the largest tech names, blended growth — a measure that combines results already reported with consensus estimates for the rest — has run at roughly 61%. A meaningful portion of that figure is embedded in the upcoming results from a single chip giant whose report in the next couple of weeks will be a key test of whether the rally can sustain its momentum.
The Consumer as the Next Test
The strongest segments of earnings season — technology and financials — are largely behind us. The next phase will tilt toward consumer discretionary names, and that is where the picture gets more uncertain. Discretionary results may bring less of the upward revision pattern that has defined the season so far, simply because the consumer is showing signs of strain.
Several large companies have already flagged softness. Whirlpool, McDonald's, and Kraft Heinz have all pointed to weakness in consumer spending, and broader sentiment surveys remain subdued even as the labor data holds up. For investors who have been watching the rally narrow around AI, the question is whether earnings strength can broaden into other sectors. A previous line of thinking has favored names with pricing power — Procter & Gamble being a prominent example — as a way to navigate an environment where inflation is still uneven and the consumer is increasingly selective.
The AI Trade Is Carrying Global Markets
Nowhere is the concentration of the rally more visible than in Asia. Semiconductor leaders such as Samsung, SK Hynix, and TSMC have been printing record after record, and the performance is rippling through entire national markets. Both Taiwan and South Korea have leapfrogged Canada's stock market in the past two weeks alone, a striking shift in the global hierarchy.
Inside emerging-market indices, the dependence on a handful of names is even more acute. Three chip companies based in Taiwan and South Korea now represent roughly 24% of the EM index by weight — but they punch far above that on earnings. They account for an extraordinary 60% of expected 2026 earnings for the entire EM benchmark. By contrast, the more domestically oriented emerging markets — China and India — have seen earnings estimates revised lower. The takeaway is sobering: if AI capital expenditure cools and global markets are forced to lean on broader economic growth, the cushion looks thin. For now, the AI build-out is outweighing the risks of an economic slowdown, but the rally is structurally dependent on AI continuing to deliver.
Overbought, but Not Necessarily Overdone
By technical measures, parts of the market are clearly stretched. The Nasdaq 100 is sporting a relative strength index near 80, and new highs in names like Alphabet, along with strength across the semiconductor complex — Intel, AMD, Micron — speak to how tightly the leadership is clustered. Yet overbought conditions can persist for a long time. The more meaningful warning sign would be a decisive trip back down through the RSI 70 line, and that has not happened.
There is, in fact, room for the rally to broaden. The S&P 500 equal-weight index carries an RSI closer to 60, and the Russell sits near 65. Small caps, despite a recent pullback, are still beating the S&P 500 on a year-to-date basis. With only about 53% of S&P 500 components currently trading above their 50-day moving averages, there is plenty of headroom for participation to widen. Whether that broadening actually materializes is the open question that will define the next leg of this market.
What to Watch From Here
The next several weeks will bring an unusually dense cluster of catalysts. A high-stakes summit between the two largest economies will set the tone for trade policy and technology cooperation. A pivotal earnings report from the AI infrastructure leader will test whether the most concentrated growth story in the market can keep delivering. Discretionary results will reveal how much of the consumer's softness has actually shown up in corporate fundamentals. And the technicals — particularly whether breadth expands beyond the mega-cap leaders — will determine whether this rally is durable or precarious. The fundamentals are constructive, but so much of the optimism is concentrated in a single theme that the margin for disappointment is narrower than the headline indices suggest.