As is often the case during the summer months, the price action is dictating the narrative.

If risk assets are trading constructively, markets are pricing in a Goldilocks macro environment and a soft landing. If not, equities are responding to geopolitical tensions, China’s deteriorating growth prospects and some fill-in-the-blank negative catalyst.

On Thursday, for example, relatively poor risk sentiment was blamed, in part, on adverse developments in Ukraine, where Vladimir Putin is bombing ports and food storage facilities after exiting the Black Sea Grain Initiative earlier this week. The Kremlin said it’ll treat inbound ships as military targets. Kyiv threatened to reciprocate against ships bound for Russian ports.

The EU accused Putin of demonstrating a “barbarian attitude,” and Ukraine mocked the Moskva, a sore spot for the Kremlin. “The fate of the cruiser proves that Ukraine’s defense forces have the means necessary to repel Russian aggression at sea,” Kyiv dryly remarked, of Putin’s sunken flagship.

Some analysts also cited Goldman’s real estate writedowns, and China’s increasingly belabored efforts to put a floor under the yuan.

Of course, the real problem Thursday was the market’s adverse reaction to Netflix’s underwhelming revenue forecast and concerns around Tesla’s profitability. I won’t recap those stories. Anyone who didn’t get the memo can read all about it (“Extra! Extra!”) in “Tesla, Netflix Mark Unofficial Start To Big US ‘Tech’ Earnings.”

Both companies’ shares struggled, weighing on the broader market, even as the Dow managed a ninth straight gain. It was Netflix’s worst day of 2023, and the same may as well have been true for Tesla.

“Earnings disappointments from Tesla and Netflix may be the trigger for a rotation away from the so-called ‘Super 7’ tech stocks that drove 70% of this year’s rally in US equities,” Bloomberg’s Heather Burke wrote on the terminal.

And here I thought Amazon, Apple, Google, Meta, Microsoft, Nvidia and Tesla were the “Magnificent” 7. Apparently they’re “Super” now. Whatever they are — “magnificent,” “super” or any other superlative — they’ve “rallied faster than this year’s change in estimates for blended 12-month forward EPS,” Burke went on to say.

Frankly, the only context in which the selloff in Tesla and Netflix on Thursday made sense was when viewed through the lens of stupendous gains for big-cap US tech (or names we generally associate with tech, even if they aren’t tech stocks strictly speaking). There was nothing “wrong” with Netflix’s report, nor were there any big red flags from Tesla. Or at least not “in my view,” as the sell-side would put it.

On the macro front, it was a “good news is bad news” session. Another “surprise” (and the scare quotes are there for a reason) drop in jobless claims ostensibly triggered the first bond selloff of the week. It’d be a mistake to make anything of it, though. BMO’s Ian Lyngen and Ben Jeffery called the selloff “disproportionate to the fundamentals on offer.” “This isn’t to suggest the market is ‘wrong’; rather that the choppy, midsummer trading environment has begun to take hold,” they added.

Indeed, it’d be a mistake to read anything into the current price action other than what’s obvious which, to me anyway, is just that big-cap US tech is up a lot this year, which means there’s downside risk into Q2 results, particularly around revenue guides.

Overall (i.e., notwithstanding the somewhat dubious notion that another drop in jobless claims was good enough to catalyze an otherwise inexplicable 11bps selloff in the belly of the curve), buy-in for a soft landing and the notion that this month’s Fed hike will be the last, is strong.

“US markets continue the Pollyanna-like thinking that rate cuts are around the corner, but bias has been persistent and wrong throughout the cycle,” JonesTrading’s Mike O’Rourke remarked.

For their part, SocGen’s derivatives team said equities should “continue to do well” in the near-term. “The rates/equity volatility ratio remains extremely elevated,” the bank’s Jitesh Kumar and Vincent Cassot wrote. “Instead of trying to position for a rise in equity volatility to catch up, we recommend investors use the elevated rates volatility to finance some upside in US equities.”