S&P 500, Nasdaq 100 Extend Recovery as Tesla Soars, Energy Stocks Dive on Oil Slump

US STOCKS OUTLOOK:

• The S&P 500 and Nasdaq 100 rise for the third straight day, closing at their best level since early June
• Tesla rallies nearly 10% on strong earnings. Meanwhile, energy stocks sell-off as oil prices slump
• U.S. PMI data will steal the limelight on Friday

Most Read: Dow Jones Rebound Faces Downtrend Resistance. Now What?

Major U.S. equity benchmarks climbed on Thursday amid a cautiously upbeat mood on Wall Street. While some stocks managed to post solid gains for another day, others did not fare too well, with market breadth not particularly strong, a sign that investors remain selective and are not deploying capital in risk assets indiscriminately.

At the closing bell, the S&P 500 jumped 0.99% to 3,999, with consumer discretionary leading the advance and energy bucking the trend. Stocks in the fossil fuel business, such as Exxon Mobil and Occidental Petroleum, suffered heavy losses after oil prices plunged more than 3%. Elsewhere, the Nasdaq 100 jumped 1.44% to 12,619, ending at its best level since June 9, boosted by Tesla’s ~10% rally in the wake of solid corporate earnings. Last but not least, the Dow underperformed its peers, rising a modest 0.5% to 32,037 as Verizon and IBM came under pressure in regular trading hours.

Looking ahead, the earnings season will continue to command most of the attention as investors look for clues about the impact of high inflation, slowing demand and tighter financial conditions on Corporate America. There will be no major releases on Friday, but heavy hitters such as Apple, Microsoft, Alphabet, Meta and Visa are scheduled to announce their results next week. While quarterly execution will be important, traders should focus on guidance and comments on the outlook to see if these big companies are preparing for a significant downturn.

In terms of the U.S. economic calendar, there is one high-impact event to keep an eye on just before the weekend: the July manufacturing and services PMI survey by S&P Global. While data is expected to cool further, it is the magnitude of the slowdown that will matter most. If both sectors contract or come close to shrinking, sentiment could deteriorate in response to recession fears. A recessionary environment, which typically leads to high unemployment and lower consumption, will be detrimental to stocks, especially cyclical companies whose earnings depend on healthy economic growth.

S&P 500 TECHNICAL CHART

The S&P 500 has risen steadily, moved atop its 50-day simple moving average, and climbed out of bear market territory in recent days, sending a positive signal to technical traders. But with market breath failing to improve meaningfully, this could well be another dead-cat bounce amplified by thin liquidity. Time will tell, but to have confidence in the recovery’s sustainability, the number of stocks participating in the upswing must increase.

Focusing on price action, if bulls manage to push the index higher in the coming sessions, initial resistance appears at 4,060, followed by 4,170. On the flip side, if sellers return and spark a bearish retrenchment, the 3,900 area could act as support on a pullback, but if it fails to hold, the index could be on its way to retest the 3,820 floor.

S&P 500 TECHNICAL CHART

S&P 500 Daily Chart Prepared Using TradingView