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Earnings season has returned, and while the timeline between reporting periods seems to shrink every quarter, the insights remain as critical as ever. We are currently witnessing a pivotal shift in market leadership. For years, the narrative has been dominated by a handful of technology giants, but the latest data suggests a passing of the baton. From the staggering profitability of major banks to the resurgence of cyclical industries, the market is broadening in a way that suggests economic resilience rather than recession.
Below, we break down the most significant trends from the start of earnings season, including JP Morgan’s dominance, the "Great Broadening" of the S&P 500, and the geopolitical tensions surrounding the Federal Reserve.
Key Takeaways
- JP Morgan’s Financial Fortress: The bank is projected to generate roughly $150 million in pure profit every single day in 2025, signaling a robust banking sector despite headline risks.
- The Great Broadening: Technology stocks are lagging while cyclicals, financials, and industrials are outperforming, creating a healthier, more participatory market rally.
- The K-Shaped Consumer: Delta Airlines reported that premium cabin revenue is now outpacing the main cabin, confirming that the upper tier of the economy remains incredibly strong.
- Fed Independence Under Fire: Recent political pressure and subpoenas issued to Jerome Powell raise questions about the future autonomy of monetary policy.
- Commodities and Materials Awakening: Stocks related to housing, infrastructure, and energy—like Vulcan Materials and Exxon Mobil—are breaking out, suggesting a transition to a late-cycle economy.
The Banking Behemoth: JP Morgan’s $150 Million Days
The kickoff of earnings season is defined by the financials, and JP Morgan continues to operate in a league of its own. While CEO Jamie Dimon is famous for his "risk manager" persona—constantly warning of geopolitical storms and economic hurricanes—the numbers tell a story of immense strength. The bank’s full-year earnings projection for 2025 sits at approximately $57.5 billion.
To put that into perspective, JP Morgan is on track to generate $150 million in net profit every single day of the year, including weekends. This level of profitability highlights the dominance of the franchise and the favorable environment for net interest income.
"The US economy has remained resilient. While labor markets have softened, conditions do not appear to be worsening. Meanwhile, consumers continue to spend and businesses generally remain healthy."
This commentary from Dimon is notable because it breaks from the doom-and-gloom narrative often peddled in financial media. If the largest bank in the world sees resilience rather than deterioration, it becomes difficult to construct a bearish case for the broader economy. The spread between the 10-year and 2-year Treasury yields—the "meat and potatoes" of banking profitability—remains favorable, and loan activity is ticking up.
Regulatory Relief and Consumer Credit
Investors were also keen to hear about the potential impact of political proposals, such as a 10% cap on credit card interest rates. The consensus from bank leadership is pragmatic: such a cap would likely result in a dramatic restriction of credit availability for those who need it most, rather than a simple loss of revenue for banks. Consequently, the market views these extreme regulatory threats as unlikely to materialize in practice.
The Great Broadening: Tech Takes a Back Seat
For the first time in a long time, the market story is not about the "Mag 7" carrying the index. We are seeing a phenomenon best described as the "Great Broadening." Since the launch of ChatGPT, the market was narrowly led by tech and communication services. However, over the last 50 days, technology has significantly underperformed the broader index.
Historically, when the Technology Select Sector SPDR Fund (XLK) drops by 1% or more, it usually drags the market down. Recently, we have seen days where the XLK drops, yet 350 stocks in the S&P 500 advance. This decoupling is incredibly bullish. It indicates that investors are not fleeing equities; they are simply rotating capital into other sectors.
Cyclical Industries Fire on All Cylinders
The rotation is flowing directly into cyclical sectors—areas highly sensitive to economic growth. Currently, 90% of cyclical sub-industry groups are trading above their 10, 20, 50, 100, and 200-day moving averages. This includes:
- Auto parts
- Home furnishings and improvement
- Casinos and leisure
- Restaurants
When this many cyclical sectors fire simultaneously, history suggests the market is in a strong uptrend. This is no longer a story of "haves and have-nots" within the stock market; participation is healthy and widespread.
The Spotify and Netflix Convergence
An interesting subplot in the tech and media space is the high correlation between Spotify and Netflix. Their stock charts have become nearly identical. Both are battling for consumer attention against the same behemoth: YouTube. Whether it is podcasts on video or streaming series, the war for eyeballs is creating similar market dynamics for these two subscription giants.
Sector Spotlights: Where the Money is Moving
As the "mid-cycle" market transitions into what looks like a "late-cycle" phase, specific industries are beginning to roar. Late-cycle markets are typically characterized by outperformance in materials and energy.
The Premium Economy: Delta Airlines
Delta Airlines provided a stark example of the "K-shaped" economy. The airline reported that premium ticket revenue (first class and comfort plus) has now surpassed main cabin revenue in dollar terms. CEO Ed Bastian noted that effectively none of their future growth is expected to come from the main cabin.
This signals that the upper-income consumer is doing exceptionally well, unaffected by inflation in the same way as lower-income travelers. Delta is essentially transforming into a premium-only carrier in terms of revenue focus, and the stock market is rewarding that strategic pivot.
Housing and Materials
If the economy runs hot and the Federal Reserve begins to cut rates, the housing market is poised for a resurgence. We are already seeing this priced into materials stocks. Companies like Vulcan Materials and Martin Marietta—which provide the concrete and aggregates for construction—are breaking out to new highs.
In the retail space, there is a divergence between Lowe’s and Home Depot. Lowe’s is currently demonstrating superior price action, breaking through generational resistance levels. This strength in home improvement and construction materials reinforces the thesis that the market anticipates a renewed housing cycle.
Energy Wakes Up
While tech sleeps, energy is waking up. Exxon Mobil recently hit record highs, reacting to geopolitical tensions and a general rotation into commodities. Historically, it is rare for commodities to outperform bonds over a 10-year period to the degree we are seeing now. With energy stocks having lagged for some time, many are now technically positioned for a significant catch-up trade.
Political Volatility and Federal Reserve Independence
A major developing story involves the unprecedented tension between the Department of Justice and the Federal Reserve. The DOJ recently issued subpoenas to Fed Chair Jerome Powell regarding building renovations—a move widely interpreted as political pressure regarding monetary policy.
"This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions or whether instead monetary policy will be directed by political pressure or intimidation."
Powell’s defiant defense highlights a critical risk for investors: institutional stability. While some view the pressure as mere political theater, the implications for the bond market and the dollar are real. However, markets often look past political noise, focusing instead on the underlying liquidity. With a new administration incoming and potential deregulation on the horizon, the market seems to be betting that the Fed will eventually cut rates, fueling the asset prices of real-economy stocks.
Conclusion
The current market environment requires investors to hold two opposing ideas in their heads simultaneously: the macro environment is strong, but risks—from geopolitics to regulatory overreach—are elevated. However, price action remains the ultimate truth teller.
The fact that financial stocks, industrials, and materials are hitting highs while big tech consolidates is not a warning sign; it is a sign of a maturing, healthy bull market. We are likely transitioning from mid-cycle to late-cycle, a period where hard assets and cyclical companies historically generate significant returns. The narrative has shifted from "tech or bust" to a broad-based rally, and for the diversified investor, that is an excellent development.
