S&P 500 Rallies to Fresh Multi-week Highs Near 4,000, Tesla Surges 13.5%

Key Points

• The S&P 500 and Nasdaq 100 both rallied to fresh multi-week highs, boosted by a surge in Tesla shares.
• The large-cap FAANG index continues to outperform and is probing its early June highs.
• Energy stocks suffered amid a steep oil price drop whilst earnings hurt Airline and Telecom names.

Tesla Boosts S&P 500, Nasdaq 100 to Fresh Multi-week Highs

The big tech/growth stock dominated S&P 500 and Nasdaq 100 indices both rose on Thursday and hit fresh highs since early June, boosted by a surge higher in Tesla’s share price after the company reported higher than expected profits for the second quarter as the company benefitted from a series of price increases across its car models. Analysts said these price increases helped offset the negative impact of rising input costs and other production challenges, such as the uncertain Covid-19 situation in China.

The S&P 500 came close to but was unable to test the 4,000 level. The Nasdaq 100, meanwhile, surged above the 12,500 mark and is eyeing a retest of early June highs near 12,900. Strong Tesla earnings figures for Q2 come after better-than-expected subscriber numbers and a more upbeat subscriber growth forecast from Netflix earlier in the week, a combination that analysts say is giving tailwinds to large-cap tech stocks.

As a result, the FAANG index continues to outperform the broader US equity market this week. The index consists of Facebook (Meta Platforms), Amazon, Apple, Netflix and Google (Alphabet). The index is up close to 6.0% on the week and probing its early June highs, versus respective 3.0% and 4.9% on the week gains for the S&P 500 and Nasdaq 100. Data showing a cooling of the US labor market and a deterioration in mid-Atlantic manufacturing sentiment to its worst level in 10 years (excluding the 2020 pandemic shock) failed to dent the mood in equities.

Energy, Airline, Telecoms Stocks Suffer

The S&P 500 Airlines Index was last down close to 5.0% on Thursday, with United Airlines and American Airlines leading the drop following downbeat earnings and warnings about persistently high cost pressures. Elsewhere, US energy stocks also saw underperformance on Thursday amid a sharp drop in the price of US oil (WTI). Elsewhere, US telecom names also dropped, weighing on the overall Communications Services sector, after AT&T cut its revenue forecasts, citing difficulties in collecting bill payments.

European Stocks Gains Despite Jumbo ECB Hike

European stocks rallied amid strong earnings figures from a few major names, helping stocks to shrug off a larger than expected rate hike from the European Central Bank that saw them bring interest rates out of negative territory for the first time in eight years. The pan-European Stoxx 600 index rallied back into the 424s, but was unable to challenge earlier weekly highs in the 425s.

Fears about the Eurozone energy crisis eased modestly on Thursday, which likely also helped stocks, though worries remained front and center. Upon the completion of planned maintenance of the Nord Stream 1 pipeline on Thursday, Russia’s state-owned gas producing/exporting giant Gazprom resumed gas flows to Europe, though at only about 40% of pre-maintenance levels.

The restarting of Russian gas flows into Europe comes one day after the EU advised member states to cut their gas usage by 15% between now and next March. Analysts think the risk of a total cut-off of Russian gas remains elevated. The IMF warned earlier in the week that this could send a number of highly Russian energy-dependent European countries into a deep recession.

Political instability in Italy was another factor playing on the minds of European equity investors. Italy’s FTSE MIB index fell after the collapse of Italy’s ruling government coalition on Wednesday. Italian Prime Minister Mario Draghi subsequently handed his resignation in to Italian President Sergio Mattarella and an election is expected in late Q3/early Q4.