Happy Tuesday, traders…

Jeff here.

The market has been unstoppable recently, hitting new highs despite some shaky economic data. 

But now it’s time to see how much juice this rally really has…

Earnings season is here, with big names like Netflix Inc. (NASDAQ: NFLX) set to report this week:

Is the economy thriving or running on fumes? Earnings will reveal the truth…

In a late-cycle rally like this, bad news often gets spun as good news. But that can only last so long. 

Earnings need to back up the optimism — or the market could come crashing down.

Banks have already reported and delivered some surprisingly positive news about the consumer, but inflation is still lurking in the background…

As more earnings roll in, we’ll find out if this market can keep climbing for the foreseeable future — or if it’s about to run into a hard stop. 

Pay close attention because things are about to get interesting.

With that in mind, let’s get to my Tuesday Market Outlook for this crucial week of earnings…

The CPI Came in Hot (But the Market Didn’t Care)

To quickly touch on last week’s key economic data: the Consumer Price Index (CPI) came in slightly higher than expected. 

Typically, you would expect stocks to sell off following that news. 

But this market didn’t care…

We’re currently in a phase where traditionally negative economic indicators don’t have the same impact they once did. 

Instead of a pullback, the market shrugged off the bad news and continued its bullish run. 

This tells me we’ve entered a late-stage rally. 

The “bad news is good news” dynamic is one of the most obvious symptoms of a late-cycle rally. 

Traders are increasingly optimistic, focusing more on potential future gains and less on immediate risks. 

This attitude is inflating share prices, especially in sectors that have led the market all year.

But as Isaac Newton said, what goes up must come down…

What Could Derail This Rally?

While this bullish momentum has been strong, nothing goes up forever…

There are a few looming factors that could end this rally:

First, we could see technical overheating… 

The market has been on a historic run. But eventually, it will hit technical resistance. 

Overbought stocks could see pullbacks, especially if we don’t see new positive catalysts. Watch out for blow-off tops. 

Second, disappointing earnings could lead to a rally-ending sell-off…

So far, this rally has been driven by just a few sectors, notably semiconductors and other big-tech names. These companies have performed incredibly well and helped lift the broader market. 

But if we start to see earnings weakness — especially in tech — it could signal serious trouble ahead. 

The Earnings I’m Watching This Week

Speaking of earnings, I’m paying close attention to Netflix Inc. (NASDAQ: NFLX) on Thursday. 

It will be interesting to see how Netflix reports considering its role as a bellwether for consumer spending and streaming services. 

Banks have already released their earnings, and those reports had some surprising things to say about the consumer. 

Despite high inflation and interest rates, several major banks reported that the consumer is still in a relatively strong financial position, which was unexpected given the broader economic climate…

That said, don’t expect every sector to perform equally well this earnings season. 

Interest rate-sensitive industries, like real estate and consumer discretionary stocks, are still feeling the squeeze from higher borrowing costs. 

While bank earnings may have painted a rosier picture of the consumer, other businesses may give more mixed signals.

That’s why it’s important to pay attention to major earnings reports. These reports will tell us whether this rally has more room to run. 

For now, the market is determined to keep moving higher, shrugging off the usual worries. 

And as long as traders and investors continue to buy into the idea that bad news is good news, we may see even more bullish moves ahead.

Happy trading,

Jeff Zananiri

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