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.

In late hours, Tesla Inc. soared despite an earnings miss, with Elon Musk’s electric-vehicle giant disclosing plans for more affordable models. The stock halted a seven-day plunge that drove it to “oversold” levels, climbing alongside other members of the “Magnificent Seven” cohort of megacaps. Texas Instruments Inc. gave a bullish revenue forecast for the current quarter, indicating that a slump in demand for industrial and automotive components may be easing.

After notching several record highs this year, equities lost traction in April amid signals the Federal Reserve will hold rates higher for longer. The slide has made stocks more attractive as it removed market froth, with investors now focused on corporate 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 U.S. The current earnings season could refocus investor attention on solid underlying fundamentals.”

The S&P 500 rise to around 5,070, while the tech-heavy Nasdaq 100 added 1.5 per cent. 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 US$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 U.S. 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.

“The theme is that it’s a very unbalanced economy and that’s the theme we’ve had for a while, so post-Covid, it’s just been a very unpredictable environment for a lot of reasons,” Wilson said. “Some of those things we got really wrong. And I think we’re trying to figure out kinda what the next stage is.”

Equities saw their biggest back-to-back advance in two months. That’s after a selloff that sent the S&P 500 down over 5 per cent 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.

“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 per cent to 5 per cent — 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.

Profits for the “Magnificent Seven” group — which also includes Apple Inc., Amazon.com Inc. and Nvidia Corp. — are forecast to rise 38 per cent 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 ratio to the rest of the index’s sectors,” they noted.

“Big Tech is carrying S&P 500 earnings growth this quarter, but the other 495 companies in the index will have to come into their own starting in the second quarter,” said Nicholas Colas at DataTrek Research. “Markets clearly believe this will occur, which is why large caps have held in fairly well, even as rates and geopolitical risks have risen.”

Brace for more declines in stock markets, warns Goldman Sachs Group Inc.’s tactical specialist Scott Rubner.

Answering a barrage of questions from clients on whether the pullback in stock markets meant enough equity exposure was reduced last week, Rubner said “my reply is no.” He noted that Goldman clients have been reducing exposure on any uptick in stocks. 

Goldman’s trading desk estimates that commodity trading advisers, or CTAs that surf the momentum of asset prices through long and short bets in the futures market, are modeled to sell stocks over the next week, no matter which way markets go.

To Mark Newton at Fundstrat, the stock rebound doesn’t mean the lows are in — but they look close — and breadth looks to have bottomed out. 

“Technology has pulled back to good support, and should stabilize/rally post earnings,” he noted. “Value has taken a temporary lead over growth — which should prove temporary.”

Corporate Highlights:

• Apple Inc.’s iPhone sales in China fell 19 per cent during the March quarter, according to data from an independent research firm that marked the gadget’s worst performance there since Covid struck around 2020.
• Spotify Technology SA reported it swung to a profit in the first quarter as the audio-streaming giant boosted subscribers and added new features.
• PepsiCo Inc. posted stronger-than-expected sales growth thanks to robust demand in its international divisions, while volumes dropped in North America.
• Halliburton Co., the world’s biggest provider of fracking work, posted its best earnings for a first quarter in a dozen years despite a shrinking business in the shale patch that it said isn’t likely to recover this year.
• General Motors Co. expects better profit this year after a strong first quarter, as robust truck sales in the U.S. led the automaker to raise 2024 guidance by $500 million.
• General Electric Co. raised the full-year profit guidance for its aerospace business, driven by an increase in revenue from commercial aircraft engines and services.
• JetBlue Airways Corp. forecast worse-than-expected sales this quarter, blaming excess flying capacity in the critical Latin America market
• Philip Morris International Inc. raised its full-year outlook after strong sales of its heated tobacco and nicotine pouch products.
• UnitedHealth Group Inc. found files containing private information on a vast number of Americans whose data may have been compromised in a February cyberattack that upended the U.S. health system.
• Lockheed Martin Corp.’s first-quarter operating income beat expectations as it delivered more fighter jets and missile systems.
• RTX Corp.’s profit beat Wall Street estimates as the aerospace and defense giant works through the costly recall of its best-selling jet engine.
• Kering SA warned that profit will plunge in the first half of the year as the crisis at Gucci, its biggest brand, deepens.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.2 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 1.5 per cent
• The Dow Jones Industrial Average rose 0.7 per cent
• The MSCI World index rose 1.2 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.4 per cent
• The euro rose 0.4 per cent to $1.0702
• The British pound rose 0.8 per cent to $1.2449
• The Japanese yen was little changed at 154.82 per dollar

Cryptocurrencies

• Bitcoin was little changed at $66,486.04
• Ether rose 0.9 per cent to $3,218.9

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.60 per cent
• Germany’s 10-year yield advanced two basis points to 2.50 per cent
• Britain’s 10-year yield advanced four basis points to 4.24 per cent

Commodities

• West Texas Intermediate crude rose 1.7 per cent to $83.32 a barrel
• Spot gold fell 0.2 per cent to $2,322.91 an ounce