On Thursday, both the Nasdaq and the S&P 500 were set to start the day higher, thanks to electric carmaker Tesla’s quarterly results that topped the profit target of Wall Street. Meanwhile, futures that tracked the Dow Jones Industrial Average were struggling to find a direction.
Positive earnings
There was a 3% rise in Tesla in premarket trading, as a number of price increases in its vehicles gave its quarterly profit a strong boost. This helped in offsetting the challenges the company had faced in production.
Of late, the positive earnings announcements from streaming company Netflix Inc. and Tesla have given a boost megacap growth stocks, which have come under pressure because of interest rate hikes. There were also gains of 0.6% to 0.7% in shares of Amazon.com Inc., Alphabet Inc., and Apple Inc.
Market analysts said that Tesla could offer a rally in the short-term, but they said that it will not last for long. This is because there is a great deal of quantitative tightening happening and liquidity withdrawal, so high-momentum stocks, such as that of Tesla, are not following cyclical or secular patterns.
Interest rate decision
While the positive results did give market participants some relief, they are still anxiously awaiting the policy meeting of the US Federal Reserve scheduled for next week. This is when policymakers will decide on the rise in interest rates in order to combat inflation.
The rate is expected to be increased by 75 basis points and the decision on the rate will be followed by crucial gross domestic product data in the US for the second quarter. It is expected to be negative once more.
If the rule of thumb is followed, two consecutive quarters of negative GDP growth would indicate that the economy of the United States is already in recession. Market analysts said that US corporate earnings appear to have a challenging backdrop.
With a strong US dollar, a slowdown in economic growth, and margins under pressure, it would be tough for S&P 500 companies to meet the optimistic expectations that are embedded in forecasts. Therefore, analysts are expecting a 5.9% decline in year-on-year profits of S&P 500 companies in the second quarter.
Other data
The latest economic data showed that the labor market may finally be cooling, as there was a rise in the number of Americans who filed for new unemployment benefit claims. It has reached its highest level in eight months. This could be because of tighter financial conditions and monetary policy.
There was a 0.08% fall in the Dow e-minis, or 25 points, by 8:38 a.m. Meanwhile, the S&P 500 e-minis and Nasdaq 100 e-minis recorded gains of 0.13% and 0.43%, respectively. The fall in oil prices affected companies, such as Chevron Corp which fell by 1.9% and other energy companies fell between 1.9% and 2.5%. These included Exxon Mobil Corp, Occidental Petroleum Corp, and Oil Corp.
US airlines also saw their shares fall, with American Airlines shedding 3% and United Airlines Holdings falling 6%.