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S&P 500 and Nasdaq 100 Rally as Risk Appetite Recovers Ahead of Tesla’s Earnings

S&P 500 and Nasdaq 100 Rally as Risk Appetite Recovers Ahead of Tesla’s Earnings

Diego Colman, Contributing Strategist


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  • S&P 500, Dow, and Nasdaq 100 rally as risk appetite rebounds ahead of key corporate earnings on Wednesday
  • Tesla will announce its quarterly results tomorrow after the market close
  • This article looks at the key technical levels for the S&P 500 to watch out for in the coming days

Most Read: Trading Earnings Season - 3 Steps for Using Quarterly Corporate Results

U.S. stocks rallied on Tuesday after a soft performance at the start of the week, supported by expectations that corporate America will continue to surprise and deliver reassuring results during the current earnings season amid economic resilience.

At the closing bell, the S&P 500 climbed 1.61% to 4,462, bolstered by a strong upward move in Amazon, Meta, and Alphabet shares. The Dow Jones, for its part, advanced 1.46% to 34,912, its best level in three weeks, underpinned by solid gains in Johnson & Johnson, Boeing, and Home Depot stock prices. Last but not least, the Nasdaq 100 outperformed its top two peers, soaring 2.15% to 14,210amid broad-based strength in the tech space despite the relentless rise in U.S. Treasury Yields.

During the trading session, sentiment was boosted by a sharp commodity sell-off in the energy complex, with WTI oil down more than 5% and natural gas prices off by roughly 8%. Given the inflationary environment, any pullback in fossil fuels these days is viewed favorably by investors, based on the assumption that it will help reduce soaring price pressures in the economy and, possibly, the need to tighten monetary policy aggressively over the coming months.

Encouraging corporate earnings also added to the positive tone on Wall Street. The quarterly reporting period has just gotten underway, so no general conclusions can be drawn, but it is a good sign that 80% of the companies that have already announced their numbers and belong to the S&P 500 are topping EPS expectations handily, according to FactSet data.

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If this pattern consolidates in the coming days and weeks, stocks will have fewer hurdles to extend their recovery, although forward-guidance may be more useful in forecasting the medium-term trajectory of risk assets beyond the immediate knee-jerk reaction to a beat or miss financial statement.That said, it is important to focus onmanagement comments about the outlook, profits and how companies are handling ongoing supply chain snags and surging costs.

Looking ahead, the U.S. economic calendar is devoid of high-impact events on Wednesday, but there are key earnings to watch for, including Tesla’s - a company with a market capitalization in excess of $1 trillion. Traders tend to keep an eye on heavy hitters because they can set the tone for the broader market or influence the performance of stock indices by virtue of their heavy weighting in them. In terms of consensus expectations, analysts are looking for EPS of $2.26 on revenue of $17.659 billion (see below).

Source: TradingView Earnings Calendar

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In terms of technical analysis, after a strong rally on Tuesday, the S&P 500 broke through key resistance and managed to reclaim its 50-day simple moving average, a sign that the bulls are starting to test the waters again. One day's performance does not set a trend, so it is important to see how the index behaves over the next few days before making general assumptions about the potential for a meaningful recovery. On that note, if there is follow-through on the topside and the 50% Fib level is breached (see chart), bulls could become emboldened to launch an assault on the psychological 4,500 mark, a criticalceiling created by the 200-day SMA. If this barrier is decisively broken, price could be on its way to test trendline resistance at 4,590. On the other hand, if sellers return to fade the rip, initial support rests at 4,500, followed by 4,370, the April’s low. On further weakness, the 4,290 area becomes the next downside focus.

S&P 500 (SPX) Chart by TradingView


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---Written by Diego Colman, Market Strategist & Contributor

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.