The technical backdrop for equity markets remains positive with healthy participation across multiple sectors, however, the biggest risk to the equity cycle would be a breakout by U.S. long-term interest rates above their 2-year trading range.

Equity trends remain positive.

Despite a lengthy list of concerns from valuations and narrow market concentration in large-cap technology stocks to implications of the Middle East conflict, the technical trend of the S&P 500 remains positive, with a healthy breadth of participation across sectors.

The current technical backdrop to be supportive of remaining invested in equities while acknowledging potential risks, notably trends in long-term interest rates and the potential for seasonal weakness moving through Q3 into Q4.

Is this a normal pause or cause for concern ?

Global equity markets have stalled over the past few weeks, with the S&P failing to break out above its June highs at 7,620 but holding above its first support near 7,200 and rising 20-week moving average. Weekly momentum indicators, tracking 4-month swings, have turned down from overbought levels.

While a cautionary signal, it is common for these indicators to turn down weeks or even months ahead of a market pullback. Until the S&P breaks below its first support level near 7,200, the current choppy trading can be a normal pause that consolidates the prior quarter’s 20% rebound.

Moving into mid-late Q3, expect normal seasonal weakness to develop in the lead-up to U.S. midterm elections.

Breadth of participation, as measured by (NYSE) Advance-Decline (A-D) line, remains in a strong uptrend and near all-time highs. Breadth begins to decay weeks to months in advance of a market peak, so a strong NYSE A-D line is encouraging.

The A-D line reflects how most stocks outside mega-cap growth stocks are sensitive to the direction of interest rates, so it serves as a useful barometer of the internal health of the equity market.

The behavior of semiconductors— which are at the heart of the AI infrastructure buildout— remains a barometer for investors’ risk appetite. After a 100+ % rally in Q2 on the back of surging fundamentals, semiconductor indexes declined 20 % in just three weeks, returning to short-term oversold levels.

Outside of dominant technology and growth leadership, the technical profile for many energy and materials stocks to be positive. Following Q2 corrections, these sectors are an area for investors to consider as part of an inflation hedge within portfolios.

The direction of interest rates to be one of the more important catalysts for the equity bull market that bottomed in Q4 2022 and accelerated in Q4 2023. Since Q4 2023, the U.S. 30-year and U.S. 10-year Treasury yields have traded in sideways ranges with equity markets trending higher.

Expect this trading range to continue in Q3, while a breakout above would signal that inflation concerns are accelerating with equity market breadth and price trends likely turning negative. Important upside technical threshold for U.S. long rates.

The highlighted in red and blue the upper and lower bands that are technically important, with the U.S. 30-year Treasury yield challenging a key level between 5.0 % and 5.18 %, while the key levels for the more widely followed U.S. 10-year Treasury yield start at 4.7 % followed by a critical band between 4.8 % and 5.0 %.

On the downside, a move below 4.8 % by the U.S. 30-year Treasury yield would be needed to signal a reversal of the uptrend that began in the summer of 2025, with 4.5 % as the next key level. For the U.S. 10-year Treasury yield, 4.2 % remains an important short-term floor.

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