US stocks hit records (again...), but oil and earnings risks are growing. What can you trade?

US stocks remain supported by softer inflation and lower expectations for another Federal Reserve rate hike. However, two risks are becoming harder to ignore: elevated oil prices and a defensive shift in recent earnings reactions. The market is still constructive, but traders may need to become more selective rather than simply buying every AI stock or market dip. Key takeaways for traders and investors today US stocks: The S&P 500 and Nasdaq closed at record levels after benign producer-price inflation. Main macro risk: A sustained Brent crude breakout above $90 could revive inflation concerns and pressure growth stocks. Earnings warning: Recent earnings batches have produced weaker breadth and more influential large-cap declines. AI lesson: Applied Materials fell about 5% despite solid results, showing that good earnings are not always good enough when expectations are extremely high. Current market read: This looks like an emerging defensive shift, not yet a confirmed bearish regime. In my latest market breakdown, as futures slip beneath their developing value area and spot trades under its rising pitchfork channel, placing the immediate tactical burden of proof entirely on buyers. Meanwhile, risk sentiment in broader equity markets continues to find underlying support, with Eamonn Sheridan from investingLive.com reporting that amid aggressive enterprise expansion ahead of a prospective public listing. In the macro and currency space, Justin Low at investingLive.com outlined due to severe debt-servicing limits and deeply negative real rates, while his commodity coverage also highlighted how , shifting the yellow metal's near-term bias to neutral as sellers defend key technical resistance overhead. And if you're interested in . Why softer inflation is helping US stocks The S&P 500 closed Thursday at 7,798.99, up 0.65%, while the Nasdaq advanced 0.81% to 26,803.03. The Dow gained a more modest 0.13%, finishing at 53,839.99. Technology and semiconductor stocks again provided important leadership. Sandisk rose approximately 13.7%, Micron gained around 4.2%, Meta advanced 2.8%, and Microsoft added nearly 1%. The immediate catalyst was softer US producer-price inflation. July PPI was essentially unchanged from the previous month, compared with expectations for a 0.2% increase. That reduced the probability of another near-term Federal Reserve rate hike. Markets are now pricing roughly a 33% to 35% chance of a September increase, down from approximately 55% a week earlier. This matters because lower expectations for future interest rates can make highly valued growth stocks easier for investors to justify. However, the US 10-year Treasury yield remains relatively elevated near 4.66% to 4.70%, so technology stocks are not completely free from interest-rate risk. Are earnings reactions becoming more defensive? The broader index picture is bullish, but the latest earnings reactions are becoming less supportive. The August 13 after-hours batch produced several defensive signals: Only about 37% of directional reactions were positive. The median stock reaction was approximately -1.3%. The simple average reaction was around -1.8%. When company size was considered, the batch weakened to approximately -2.8%. Downside moves beyond options-implied expectations slightly outnumbered upside breaks. This does not mean Q3 earnings season has turned decisively bearish. Earlier batches produced powerful gains in companies such as Nebius, CoreWeave, Lumentum and Super Micro. The wider quarter has also included major positive repricings in Microsoft, Amazon, Palantir, Shopify and Airbnb. The better description is a highly selective earnings environment that is beginning to develop a defensive bias. Investors are still willing to reward genuine upside surprises. They are also becoming less forgiving when results, guidance or management commentary fail to meet elevated expectations. Why Applied Materials matters, but is not an extreme shock Applied Materials fell about 5% after earnings, despite revenue growth of approximately 25%, better-than-expected revenue and guidance above consensus. This reaction matters because Applied Materials is a large semiconductor company. Its decline can affect sector sentiment and major indexes much more than a larger percentage move in a small company. However, there is an important nuance: options traders had been pricing an earnings move of approximately 7.4%. A 5% decline is therefore negative, but smaller than the move the options market considered plausible before the announcement. It is a meaningful large-cap drag, not an unusually severe earnings shock. This distinction helps explain why traders should compare the actual reaction with the expected move. What this means: Options prices provide an estimate of how far a stock might move around earnings. A 5% decline when 10% was expected can be relatively contained. A 10% decline when only 4% was expected represents a much stronger negative surprise. Why the indexes can rise while earnings sentiment weakens Earnings breadth counts how many reporting companies rise or fall, but that count does not reveal the entire market impact. Twenty small companies can rally while one major technology company falls. The batch may have more winners, yet the large company can still exert greater pressure on the S&P 500 or Nasdaq. That appears to be part of the current story. Some recent earnings batches had respectable positive breadth, but larger negative companies mattered more than the smaller winners. The latest earnings data should therefore be treated as an early warning about market psychology, not proof that the broader equity rally is over. The most interesting markets and setups to watch Could oil become the spoiler for stocks? Brent crude is trading near $87 per barrel, while WTI is around $81. Oil is caught between two powerful forces. Middle East tensions and risks surrounding Iran and the Strait of Hormuz are supporting prices. On the other side, weaker demand forecasts and a large increase in US crude inventories are limiting the bullish case. The area around $90 Brent is the clearest macro level to watch. Bullish oil scenario: Sustained acceptance above $90 would suggest geopolitical supply risk is overpowering weaker-demand concerns. Traders could then monitor crude oil, energy producers and relative weakness in rate-sensitive technology stocks. Bearish oil scenario: Rejection in the upper $80s, followed by a breakdown, could favor mean reversion as weaker demand and rising inventories regain attention. Even investors who never trade oil should watch this market. The potential transmission mechanism is straightforward: Higher oil prices → greater inflation risk → higher interest-rate expectations → potentially higher Treasury yields → pressure on expensive growth stocks. What should traders watch in AI and semiconductor stocks? Applied Materials, Cisco and other recent reporters show that an earnings beat alone is no longer enough to guarantee a bullish reaction. For potential longs, traders may want to watch strong companies that initially sell off after earnings but subsequently reclaim the breakdown area. That can show that the market has absorbed the disappointment and is beginning to accept higher prices again. For potential shorts, failure to reclaim the post-earnings gap can support a continuation or fade setup, particularly when the stock entered earnings with an extended valuation and exceptionally high expectations. The key question is not simply whether the stock initially rose or fell: Does the market accept the new post-earnings price, or does it quickly reverse the reaction? Is the gold pullback a possible opportunity? Spot gold is trading near $4,324, while US gold futures are around $4,379. The current decline looks more like profit-taking following a strong advance than definitive evidence of a larger bearish reversal. Gold continues to receive support from geopolitical uncertainty, central-bank demand, portfolio diversification and reduced expectations for additional Fed tightening. One possible setup is to wait for a controlled pullback that forms a higher low. The bullish case would strengthen if buyers defend support while Treasury yields and the US dollar remain contained. The setup weakens if gold breaks deeper support at the same time that yields and the dollar accelerate higher. Why USD/JPY near 160 deserves attention USD/JPY is approaching the psychologically important 160 area. Large round numbers can attract profit-taking, stop orders, options activity and concerns about possible official intervention. Traders should focus on the reaction rather than automatically buying or selling at the number. Sustained acceptance above 160 could support another momentum move higher. A sharp rejection could produce a tactical bearish setup. This is a useful example of why price behavior around a level is often more informative than the level itself. What would confirm a broader defensive shift? The warning from recent earnings would become more convincing if upcoming batches show several of the following: Fewer than half of reporting companies rise. Large-cap earnings reactions remain negative. More stocks fall beyond their options-implied moves. Semiconductor weakness spreads across the sector. Recent earnings losers fail to recover. Previous earnings winners begin surrendering their gains. The defensive interpretation would weaken if major earnings losers recover, large-cap winners reappear, semiconductor leadership strengthens and positive reactions again exceed expected moves. For now, US equities remain supported, but the easy phase of simply chasing strong indexes and AI enthusiasm may be becoming more complicated. Oil, Treasury yields and post-earnings price acceptance should provide the clearest evidence about what comes next. These are market scenarios and areas to monitor, not guarantees or individualized investment advice. Traders should define their confirmation, invalidation and maximum acceptable risk before entering a position. This article was written by Itai Levitan at investinglive.com.

• AI lesson: Applied Materials fell about 5% despite solid results, showing that good earnings are not always good enough when expectations are extremely high.
• Sandisk rose approximately 13.7%, Micron gained around 4.2%, Meta advanced 2.8%, and Microsoft added nearly 1%.
• The August 13 after-hours batch produced several defensive signals: Only about 37% of directional reactions were positive.
• Why Applied Materials matters, but is not an extreme shock Applied Materials fell about 5% after earnings, despite revenue growth of approximately 25%, better-than-expected revenue and guidance above consensus.
• Applied Materials, Cisco and other recent reporters show that an earnings beat alone is no longer enough to guarantee a bullish reaction.