Tech Giants Roar as Tesla Spikes in Late Hours: Markets Wrap

(Bloomberg) — A rally in tech heavyweights lifted the broader stock market, with the group’s high-stakes earnings seen by Wall Street investors as a major test of the bull run in equities.

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In late hours, Tesla Inc. soared as the electric-vehicle giant said it will accelerate the launch of more-affordable models — and chief Elon Musk struck an upbeat tone. The stock halted a seven-day plunge that drove it to “oversold” levels, climbing alongside other members of the “Magnificent Seven” cohort of megacaps on Tuesday. Texas Instruments Inc. gave a bullish revenue forecast — a good sign for the chip industry.

Tesla Stock Soars on ‘Not as Bad as Feared’ Results: Street Wrap

After notching several record highs this year, equities lost traction in the past few weeks amid signals the Federal Reserve will hold rates higher for longer. The slide made stocks more attractive as it removed market froth, with investors now focused on earnings, according to Citigroup Inc. strategists.

“We would view the recent pullback as a buying opportunity,” Citi’s Mihir Tirodkar and Beata Manthey said. “Bullish positioning has unwound and now looks more neutral, particularly in the US. The current earnings season could refocus investor attention on solid underlying fundamentals.”

The S&P 500 notched its best back-to-back rally in two months. Nvidia Corp., the poster child of the artificial-intelligence boom, led a surge in chipmakers. United Parcel Service Inc. — an economic barometer — reported profit that beat estimates. Goldman Sachs Group Inc. closed at an all-time high.

Treasuries briefly extended gains after a solid $69 billion sale of two-year notes — but quickly returned to levels seen ahead of the auction — with 10-year yields little changed.

Morgan Stanley’s Mike Wilson said the bar is high for US firms to deliver on earnings, particularly for megacap technology names, which face tough comparisons from the growth they showed last year.

But more interesting to him will be how shares react to the results.

Equities extended a rebound after a selloff that sent the S&P 500 down over 5% in April through Friday.

The most-important aspect of the market set-up heading into this week’s earnings was its “oversold” condition, according to Dan Wantrobski at Janney Montgomery Scott.

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“Thus, if earnings come in strong over the days ahead, stocks are effectively spring-loaded for a bigger counter-trend rally than we have seen thus far,” he said.

Based on the median and average pullbacks, downside from current levels would be limited to somewhere between 2% to 5% — which would also correspond to S&P 500 levels where there’s strong technical support, said Keith Lerner at Truist Advisory Services.

“Pullbacks are the admission price to the market,” he noted. “The weight of the evidence in our work suggests the market’s risk/reward has improved following the recent setback. Therefore, we view the recent pullback as an opportunity for those investors who have excess cash or are underweight equities relative to their target allocations.”

Ahead of a busy period of quarterly earnings, Bank of America Corp.’s corporate clients stepped up purchases of their own stock.

Buybacks accelerated in the five-day period through April 19 — and are tracking above typical seasonal levels for the seventh consecutive week — quantitative strategists led by Jill Carey Hall wrote Tuesday in note to clients.

Besides Tesla, Microsoft Corp., Meta Platforms Inc. and Alphabet Inc. are also due to report earnings this week. And stakes are high.

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Profits for the “Magnificent Seven” group — which also includes Apple Inc., Amazon.com Inc. and Nvidia Corp. — are forecast to rise about 40% in the first quarter from a year ago, according to Bloomberg Intelligence data.

The group of tech megacaps is crucial to the S&P 500 since the companies carry the heaviest weightings in the benchmark. After this year’s advance, valuations have gotten lofty. After the latest selloff, the Magnificent Seven still traded at a combined 31 times forward earnings, according to data compiled by Bloomberg.

To Seema Shah at Principal Asset Management, the group will likely be able to extend its positive performance.

“After all, the strong balance sheet characteristics and secure competitive market positions of the Magnificent Seven imply that a significant correction is unlikely, despite their valuations drawing comparisons to the 2000s tech bubble,” she noted.

And despite all the macroeconomic fears, tech balance-sheets may shelter the sector from elevated rates, according to BI strategists led by Gina Martin Adams.

“While tech stocks have above-average and median duration relative to the rest of the market, the group also carries relatively little debt and maintains a far superior interest-rate coverage…