The S&P 500 is now just 2% from a record and tech earnings could push it over the top

Google co-founder and CEO of Alphebet, Larry Page.
David Paul Morris | Bloomberg | Getty Images
Google co-founder and CEO of Alphebet, Larry Page.

Stocks have been in a slow-motion melt-up for the past couple weeks. What will it take for the market to hit new highs?

The S&P 500 index has risen eight of the last ten trading sessions, up 3.7 percent, to the highest level since late January. It's now only two percent from the historic high in January (2,872). The NASDAQ-100 index is already at an historic high.

Traders believe three main factors have been helping markets recently and need to continue to pass the old historic S&P historic high of January:

1) Earnings not just beating expectations, but guidance remaining strong

"Corporate fundamentals are fine, and that is translating into very good results," Alec Young, Managing Director of Global Markets Research at FTSE Russell, told me. Early signs are encouraging. With 10 percent of the S&P reporting, earnings for the second quarter are up 25 percent for those that have reported, well above expectations of a gain of 21 percent for the overall S&P. Guidance for the third quarter remains strong. Recently, United Airlines, Textron, WW Grainger, and CSX all beat and raised guidance (CSX raised revenue guidance).

2) Keeping rates and inflation under control

The markets rose on both days during Federal Reserve Chairman Jay Powell's testimony, where Powell gave an upbeat assessment of the U.S. economy and said he expected inflation to remain near its 2 percent target, and that "for now, the best way forward was to keep gradually raising the Federal Funds rate." Traders took this to mean that Powell had no intention of being overly aggressive and that if economic conditions worsened the Fed would simply stop raising rates.

3) Trade concerns lessening

"The earnings season indicates that the combination of tax cuts and a strong economy are clearly more powerful than trade worries," Young told me. "The size of the tax cuts and other fiscal stimulus dwarfs tariffs by 7 to 1, helping explain why stocks have been increasingly impervious to trade worries as earnings and economic data generally surprise to the upside.”

What could go wrong with this scenario?

They key will be technology earnings. Tech is 26 percent of the weighting in the S&P 500, and Christine Short from Estimize told me they are looking for 25 percent earnings growth and 15 percent revenue growth in technology alone.

"We are still looking for a big spending upcycle for the rest of the year in technology," she said.

She will be watching a small group of what she says are tech bellwethers: Microsoft and Skyworks after the close Thursday, followed by Google (Alphabet) on Monday; Texas Instruments on Tuesday; AMD, Facebook, Visa, and Paypal on Wednesday; Intel and Mastercard on Thursday; and Electronic Arts and Baidu on Friday.