I’m a native of Massachusetts, so it’s not surprising that growing up, I played a lot of ice hockey. One of my childhood heroes was Bruin numbah-four, Bobby Orr.

I was lousy at hockey, but I loved to play, and I’ve always remembered some wise advice from one of my hockey coaches: “Don’t skate to where the puck is, skate to where you think it will be.”

I know it’s July and few people are thinking about ice hockey right now, but this adage occurred to me this week as second quarter earnings season got underway. Like a hockey player, the key is to stay forward looking.

As the market navigates a period of political flux, the focus is shifting forward to Q2 2024 earnings reports. While the political landscape has injected uncertainty, solid operating results from companies are expected to overshadow these concerns.

Investors are turning their attention from the political circus to the financial health of corporations, which remains a fundamental pillar of this stock market rally.

In recent weeks, the market has seen increased volatility, with the S&P 500 experiencing daily fluctuations averaging around 1% over the past few trading sessions.

The assassination attempt on Donald Trump, President Biden quitting the race, the worsening of partisan rancor, demagogues prattling on about “civil war”…despite this political drama, equities have held their ground, buoyed by robust earnings reports, hopes for an interest rate cut, and resilient economic growth.

This resilience is evident in the modest movements in bond yields, with 10-year U.S. Treasury rates rising by nearly 10 basis points over the last week but still down by approximately 25 basis points in July.

The current earnings season has begun on a positive note, with bellwether firms (e.g., the big banks) reporting better-than-expected results. Recent announcements from General Motors (NYSE: GM) and United Parcel Service (NYSE: UPS) underscore this trend, although with mixed outcomes.

GM exceeded profit expectations, whereas UPS fell short. UPS’s results, however, did indicate a rise in shipping volumes in the U.S., aligning with data suggesting sturdy consumer spending.

The spotlight is now on tech giants Alphabet (NSDQ: GOOGL) and Tesla (NSDQ: TSLA), both of which reported results after the market closed on Tuesday.

Alphabet’s earnings topped estimates as its cloud business expanded, but the company’s artificial intelligence losses grew. Electric vehicle (EV) maker Tesla reported a 7% drop in auto revenue and missed earnings expectations.

Tesla’s sales have taken a hit, as the company’s natural consumer base gets alienated by the political machinations of CEO Elon Musk, who has heartily endorsed EV-hating Trump.

Regardless, consensus estimates predict nearly 10% year-over-year earnings growth for the S&P 500 in the second quarter, a healthy pace that, if sustained, would validate the market’s rally this year and support continued equity outperformance through the rest of 2024.

Recent market movements reveal a rotation in leadership. Small-cap stocks have surged, racking up an impressive rally of over 11% from July 10 to July 16, and continuing to outperform at the start of this week.

Accordingly, a bullish trend is the rise of the New York Stock Exchange Advance/Decline line (NYAD), signaling increasing breadth (see chart).

Cyclical sectors and value-oriented investments have been gaining traction, whereas mega-cap technology and growth stocks have pulled back, as evidenced by a 5% decline in the tech-heavy NASDAQ from mid-July.

This rotation aligns with expectations I expressed at the start of 2024. Sectors that lagged last year (e.g., utilities, real estate, and consumer discretionary) are taking the lead.

Foreshadowing the change of leadership has been the rise of the Dow Jones Industrial Average, which recently has outpaced both the S&P 500 and NASDAQ. This trend is poised to accelerate as the second half of 2024 unfolds.

What does the presidential race mean for investors? Wall Street is indifferent about a Harris-Trump contest. Stick to the fundamentals and keep your eye on the puck.

In the meantime, the main U.S. stock market indices tumbled Wednesday as “tech fatigue” set in and investors pocketed profits. The averages closed sharply lower as follows:

• DJIA: -1.25%
• S&P 500: -2.31%
• NASDAQ: -3.64%
• Russell 2000: -2.13%

GOOGL and TSLA fell by 5.04% and 12.33%, respectively.

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