U.S. equities finally managed to break above last year’s record highs, supported by solid economic data and prospects of new round of monetary easing by major central banks. The S&P 500 ended Friday up 5.76% year-to-date, but when looking deeper into the sectors, financials which contributes 15.21% to the index market cap is down 1.46% YTD and the largest constituent “technology sector” is only up 2.85% YTD. The two sectors which gained the most were Telecoms and Utilities, up 22.07% and 20.03% respectively, which clearly indicates that a key aspect of the rally was driven by search for yields as top rated bonds aren’t satisfying investors.

Bulls argue that current conditions could still push markets higher, while bears see price-to-earnings ratio and other valuation metrics are hard to justify. I believe U.S. equities will be under a real test next week with about one-fifth of S&P 500 companies due to report earnings. Among the big companies to announce are IBM, Johnson & Johnson, AT&T, GE, Microsoft, Goldman Sachs, and Morgan Stanley just to mention a few.

Earning growth is expected to remain in recession and fall by another 4.7% in second quarter according to Thomson Reuters. However, this isn’t the markets main concern, it’s the forward outlook what matters the most as central banks’ policies can’t push stocks forever.

ECB to hold fire

The key macro event will be the European Central Bank Meeting on Thursday and as with the BoE last week, the central bank will keep its powder dry for now and remain in wait-and-see mode. We might see an adjustment on public sector purchase programme (PSPP) as big chunk of the German bonds yield curve fell below the -0.4% deposit facility rate at which the bank can buy bonds. However, investors key focus will be on Mario Draghi’s press conference on whether he will pave the way for more easing in September. Brexit and Italian banking system will be on the top of ECB’s agenda.

UK’s one-off flash PMI

The British pound outperformed its major peers past week to end 1.9% higher against the U.S. dollar. Most of the gains were derived from the BoE’s surprise decision to keep monetary policy unchanged on Thursday, sending GBPUSD close to 1.35. The relief rally provided an opportunity to sell the pound again as traders realized that easing is not a matter of if, but by how much and when. This week investors will focus on the one-off release of Markit’s flash purchasing managers index on Friday. It will be the first leading indicator to provide a valuable assessment on the immediate impact post-referendum vote.