Tesla and yields hurt stocks, but earnings still strong

SPY closes lower on Wednesday as bond yields continue to rise.
Tesla earnings disappoint on revenue miss.
AT&T on Thursday show hope for earnings bulls.

Stocks fell on Wednesday as bond yields continued to rise globally. The yield on the US yield curve closed above 4% across all maturities and caused a growth sector sell-off, which spread to all sectors. Oil sectors continued to outperform given comments from the Biden administration about replenishing the Oil reserves at $70 a barrel. Has no one ever told them to not show their hand? Oil markets reacted accordingly, and with a floor in place proceeded to rally higher, closing up nearly 3%. This was matched by the energy sector (XLE) and producers (XOP) being the strongest sectors. Consumer stocks are also holding up well after continued strong earnings for the likes of Pepsi (PEP), Domino’s (DPZ), United Airlines (UAL), etc. Financials (XLF) ran out of steam after the recent positive earnings from the sector.

SPY news

Thursday sees Tesla dragging the indices lower as it fell over 5% in pre-market trading. Currently at the time of writing, Tesla is at $209.47 for a loss of 5.6%. This brings it close to testing key support at $207 again, and a break would have serious consequences.

AT&T (T) at least is providing some light as it beats on top and bottom lines and raises guidance. IBM and American Airlines also show the consumer remains strong and is spending despite inflation. We are in the early stages of an inflationary economy. Both an inflationary expansion and an inflationary recession can provide companies with pricing power and the ability to maintain margins and earnings before consumers eventually adapt. It is looking more and more like Q3 earnings will see this confirmed. Meanwhile, the latest data from the Atlanta Fed GDP NOW estimate shows the US economy growing by nearly 3% in Q3.

SPY forecast

$373 remains my key pivot. An early move above was rejected on Tuesday, and Wednesday saw modest price action. With sentiment improving, but positioning so far not following, I still expect $373 to break and lead us to test $388. Support at $352 remains strong, and below here lies $338.

SPY daily chart