ORLANDO, Florida, July 28 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Investors' initial response to the U.S.-EU trade deal

framework saw the euro and German stocks slammed lower on

Monday, while the S&P 500 and Nasdaq notched fresh closing highs

in choppy trade, also supported by optimism around U.S. tech

earnings.

More on that below. In my column today I look at whether the

Q2 earnings season could be an inflection point for U.S. stocks

- does the 'Mag 7' megacap concentration persist, or is the

market finally beginning to broaden out?

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. Out-gunned Europe accepts least-worst U.S. trade

deal

2. U.S. tariffs will be test of luxury brands'

pricing

power

3. EU's lopsided Trump trade deal will be

short-lived

4. Fed rates are going nowhere fast: Mike Dolan

5. Bank of England poised to slow QT after rise in

yields

Today's Key Market Moves

* FX: Euro falls 1.2%, dollar index up 1%; both

biggest

moves since May 12.

* STOCKS: Germany's DAX falls 1% after U.S.-EU trade

deal,

S&P 500 and Nasdaq notch fresh closing highs.

* BONDS: U.S. yields rise 3 bps at long end, curve

snaps

7-day flattening streak.

* COMMODITIES: Oil rises 2.4%, biggest rise in over

two

weeks.

Fading trade deal relief?

The relief and feel-good factor for markets that Sunday's

U.S.-European Union trade deal initially sparked waxed and waned

on Monday, with European assets hit hard and Wall Street trading

in negative territory for much of the session.

The S&P 500 and Nasdaq did manage to set new closing highs.

The trade deals with the UK, Japan and now the EU are seen as

significant wins for Washington and President Donald Trump, as

they secure higher tariffs on imports into the U.S. without

retaliation and include commitments for additional investment.

Many Europeans have criticized the EU for caving in.

Oppenheimer Asset Management on Monday raised its year-end

target for the S&P 500 index to 7,100, the highest among major

Wall Street brokerages, betting on easing trade tensions and

strong corporate earnings.

But as commentator Matthew Klein noted on Monday, it is odd

that the country unilaterally making things more expensive for

its citizens is somehow deemed to be "winning".

The longer-term impact on the U.S. economy and revenues

remain to be seen, but most observers agree growth will slow,

and inflation and unemployment will rise in the short-term.

Joseph Wang, CIO at Monetary Macro, estimates that the "trade

war is concluding with an effective tax hike worth about 1% of

GDP."

With the tariff on most imports from the EU now set at 15%,

America's overall average effective tariff rate is now 18.2%,

according to the Yale Budget Lab, the highest since 1934.

Attention now turns to Stockholm, where U.S. Treasury

Secretary Scott Bessent and China's Vice Premier He Lifeng are

seeking to extend a tariff truce by three months. These talks,

set to conclude on Tuesday, could also pave the way for a

meeting between Trump and Chinese President Xi Jinping in late

October or early November.

On top of trade, there are plenty market-moving developments

and events for investors to monitor this week, including

top-tier corporate earnings, policy meetings in Japan and the

U.S., and the latest U.S. inflation and employment reports.

This week is the busiest of the second-quarter earnings

season with over 150 companies in the S&P 500 scheduled to

report, including four of the 'Magnificent Seven' tech giants

later in the week. Tuesday's focus will likely center on Visa,

Proctor & Gamble, and Boeing.

Elsewhere, the U.S. Treasury on Monday said it expects to

borrow $1.007 trillion in the third quarter, almost double the

April estimate mainly due to the lower beginning-of-quarter cash

balance and projected lower net cash flows.

Is U.S. stock rally near 'Mag 7' turning point?

As investors brace for the busiest week of the U.S. earnings

season, with four of the 'Magnificent Seven' tech giants

reporting, debate is picking up again about these megacap firms'

influence over U.S. equity indexes and whether we could be

seeing the beginnings of true market broadening.

By some measures, this small clutch of tech titans' profits,

market cap, and valuations as a share of the wider market has

never been bigger. Broader indices are at record highs, but

strip out these firms and the picture is much less rosy.

Indeed, since the beginning of 2023, the S&P 500 composite -

the benchmark 'market cap' index increasingly dominated by the

'Mag 7' - has gained 67%, more than double the 'equal-weight'

index's 32%.

Only two years ago, the S&P 500 composite/equal-weight ratio

was 0.66, meaning the composite index was worth around

two-thirds of the equal weight index. That ratio is now 0.84,

the highest since 2003.

There's good reason for that.

According to Larry Adam, chief investment officer at Raymond

James, 12-month forward earnings estimates for the S&P 500 have

outpaced estimates for the equal-weight index by 14%. And

Tajinder Dhillon, senior research analyst at LSEG, notes that

the 'Mag 7' last year accounted for 52% of overall earnings

growth.

Many investors and analysts consider it unhealthy to have

the fate of the entire market dependent on so few companies. It

may be fine when they're flying high, but not so much if one or

two of them take a dive. Plus, it makes stock picking more

difficult. If the market basically goes where the 'Mag 7' or

Nvidia go, why should an investor bother buying anything else?

That's a recipe for market inefficiencies.

YACHTS AND ALL BOATS?

There have recently been nascent signs that the market may

be broadening out beyond tech and AI-related names, largely

thanks to positive news on the trade front. Last week, the

equal-weight index eclipsed November's high to set a fresh

record.

Raymond James's CIO Adam notes that the equal-weight index

outperformed the S&P 500 last week for the fourth week in the

last 13. More of the same this week would mark its first monthly

outperformance since March.

Can it hit this mark? Around 160 of the S&P 500-listed firms

report this week, including Meta and Microsoft on Wednesday and

Amazon and Apple on Wednesday. It's not a stretch to say these

four reports will move the market more than the rest combined.

LSEG's Dhillon says the Mag 7's share of total earnings

growth is expected to fall to 37% this year and 27% next

year. The expected earnings growth spread between Mag 7 and the

wider index in the second quarter - 16.4% vs. 7.7% - is the

smallest since 2023, and will shrink more in Q3, he adds.

Larry Adam at Raymond James, however, thinks the recent

market broadening is a "short-term normalization" rather than a

"material shift". He thinks the earnings strength of the

tech-related sectors justifies the valuation premium on these

stocks.

Regardless, what we know for sure is that fears about the

market's concentration and narrowness have been swirling for

years and there has yet to be a reckoning. The equal-weight

index's rise to new highs last week suggests the rising tide is

lifting all boats, not just the billionaire's yachts.

Essentially, the Mag 7 and large caps are outperforming, but

if you peel back the onion, other sectors like financials and

industrials are also doing well. And look around the world. Many

indices outside the U.S. that aren't tech-heavy are approaching

or printing new highs also, like Britain's FTSE 100 and

Germany's DAX.

"To see the largest names leading isn't a worrisome sign,

especially as they are backing it up with very strong earnings,"

says Ryan Detrick, chief market strategist at Carson Group.

"This isn't a weak breadth market, it is broad based and a very

healthy rally."

This week's earnings might go some way to determining

whether this continues for a while yet.

What could move markets tomorrow?

* U.S. consumer confidence (July)

* U.S. JOLTS job openings (June)

* U.S earnings, including Proctor & Gamble, Visa, Boeing

* U.S. Treasury auctions $44 billion of 7-year notes

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