S&P500 Forecast: SPX falls after Tesla & Alphabet earnings underwhelm

US futures

Dow future -0.52% at 40,155

S&P futures -0.9% at 5504

Nasdaq futures -1.4% at 19474

In Europe

FTSE -0.20% at 8147

Dax -0.87% at 18379

Stocks fall as earnings disappoint
Tesla missed earnings & revenue forecasts
Alphabet YouTube ad revenue missed expectations
Oil rises from a 6-week low

Tech lead stocks lower

U.S. stocks are to open sharply lower after Tesla and Alphabet earnings underwhelm.

The tech-heavy NASDAQ is taking the biggest hit. The S&P 500 is also down steeply, pulled by the technology sector following weak results from Tesla and after Alphabet's earnings highlighted the high bar that has been set for the firms this earnings season.

These two were the first of the so-called magnificent 7 mega-cap tech stocks to report. The group has boosted, in some cases, double if not triple-digit percentage gains so far in 2024, riding optimism surrounding AI adoption and Federal Reserve rate cuts.

Tech giants, which have helped drive the main indices to all-time highs in the first half of this year, could determine whether the rally has more momentum. However, valuations on these companies are lofty, so anything short of fabulous numbers was likely to disappoint

Investors will now look ahead to the S&P Global's PMI data, which is due shortly. This comes ahead of US GDP data tomorrow and core PCE figures on Friday.

The Fed is expected to leave rates unchanged when it meets next week but is expected at the market's pricing in a 95% probability of a rate cut in September.

Corporate news

Tesla is set to open 8% lower after posting a 7% fall in revenue to $19.9 billion below expectations and as net earnings almost halved, falling 45% to $1.47 billion versus $1.9 billion expected. Slower sales amid fierce competition and soaring costs owing to layoffs and AI investment hit the top and bottom lines. Meanwhile, margins fell to 18% from a peak of 29.1% in 2022. There was little to like in the numbers, and adding robotaxis has also been delayed to October, meaning there are no fresh catalysts until later in the year.

Alphabet, the Google parent company, is set to open 4% lower despite beating earnings and revenue expectations. However, advertising revenue in its YouTube segment undershot forecasts. Given that the stock has rallied 30% this year and trades just shy of record highs, expectations were high, and anything less than perfect results were likely to have been seen as disappointing.

Visa credit card is falling 3% after fiscal Q3 revenue missed forecasts. Visa pasted $8.9 billion in revenue which was slightly weaker than the estimated $8.92 billion.

S&P500 forecast – technical analysis.

The S&P 500 fails at the rising trendline resistance and rebounds lower to test the weekly low of 5500. A break below here opens the door to 5450, the July low, and the 100 SMA. Below here 5350, the May low comes into focus. On the upside, should the 5500 hold, buyers will look for a rise above 5585, the rising trendline resistance, before bringing 5670 and fresh record highs into focus.

FX markets – USD falls, GBP/USD rises

The USD is falling, paring earlier gains. The selloff comes as the yen surges to a monthly high as the carry trade unwinds ahead the next week’s BoJ & Fed meetings.

EUR is holding steady despite eurozone PMI data being weaker than expected and pointing to a very sluggish eurozone recovery. The composite PMI was just 50.1, down from 50.8 in June and dangerously close to the 50 level that separates expansion from contraction. The data suggests that the economy is losing momentum, as both the manufacturing and services sectors or activities, though.

GBP/USD is rising after UK PMI data showed that business activity picked up after a pre-election lull. The composite PMI rose to 52.7 from June's six-month low of 52.3, moving slightly higher than the 52.6 forecast. Meanwhile, businesses have raised prices by the least since February 2021, news that will be well received by the Bank of England.

Oil rises from a 6-week low

Oil prices are rising after four days of losses, recovering from a six-week low amid falling crude oil inventories and growing supply risks from wildfires.

Oil prices had dropped considerably due to concerns over the demand outlook in China after a weaker-than-expected Q2 GDP and hopes of a ceasefire in Gaza. Progress in ceasefire talks between Israel and Hamas in a plan outlined by President Biden raised hopes that the conflict in the Middle East could soon be over, lowering the risk premium on oil.

According to API data, US crude oil, gasoline, and distillate inventories fell for a fourth straight week last week, helping to lift prices. This reflects steady demand in the world's largest oil-consuming economy. The last time there were 4-straight weeks of decline was in September 2023

Elsewhere, wildfires in Canada are forcing some producers to rein in production and threatening large amounts of supply.

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