The S&P 500 (SPY) and Nasdaq (QQQ) both notched fresh all-time highs on Thursday, buoyed by Alphabet’s standout earnings, even as Tesla shares skidded nearly 9%. After climbing 0.32% to 6,379.21 and 0.41% to 21,106.64 respectively, the indexes rallied on signs that heavy investment in AI is paying dividends. Optimism around the U.S.-Japan trade deal and progress in EU tariff talks added fuel, offsetting pressure from electric-vehicle jitters.
Beyond Alphabet’s 1.6% gain, the session spotlight fell on underperformers: Tesla plunged more than 8% after Elon Musk warned of “rough quarters” as subsidies expire, extending its 2025 slide to about 25%. UnitedHealth fell 3.7% amid a Justice Department probe into Medicare practices, IBM (IBM) dropped 8% on soft software sales, and Honeywell (HON) slid 4.6% despite beating expectations. American Airlines (AAL) tumbled 7.8% on a dismal Q3 outlook, highlighting trade-war headwinds for carriers.
Market Overview:
- AI-boosted earnings in heavyweights drive record highs amid tech leadership
- Trade optimism from U.S.-Japan deal and EU talks underpins risk appetite
- EV subsidy expirations and tariff concerns create bifurcated market dynamics
Key Points:
- S&P +0.32% to 6,379.21 and Nasdaq +0.41% to 21,106.64; Dow fell 0.34%
- Alphabet shares rose 1.6%; Tesla (TSLA) off ~9%; UnitedHealth (UNH), IBM, Honeywell and AAL also slid
- Seven of eleven S&P sectors advanced, led by tech and communications services
Looking Ahead:
- Regulatory clarity on trade and tariffs will shape Q3 sector rotation
- Investor focus on AI earnings may sideline autos and insurers in the near term
- Macro cues—rate cut odds and labor strength—will drive next leg of market moves
Bull Case:
- Record highs for the S&P 500 and Nasdaq demonstrate investor conviction that AI-driven growth from major tech firms like Alphabet will continue to power the market, providing a strong backbone for broader equity gains.
- Alphabet’s robust earnings—buoyed by AI investments and double-digit growth across core businesses—reaffirm the sector’s leadership and justify premium valuations, encouraging capital rotation toward tech and communications services.
- Progress on the U.S.-Japan trade deal and positive signals from EU tariff talks ease macro uncertainty, providing support for risk-on sentiment and minimizing the perceived drag from ongoing trade frictions.
- Labor market strength, as reflected in jobless claims falling below expectations, supports consumption and reassures investors that the U.S. economy remains resilient even amid import cost pressures and Fed rate policy in flux.
- Breadth in sector leadership—with seven of eleven S&P groups advancing—suggests rally participation is broadening, reducing downside risk from any single stock or industry setback.
- Further regulatory clarity on tariffs and Fed direction could unlock new sector rotations and keep institutional flows engaged as Q3 earnings approach.
Bear Case:
- The rally is increasingly concentrated in AI-linked tech leaders, while underperformance in key sectors—such as autos (Tesla down nearly 9% and 25% YTD), airlines, and healthcare—reveals fragility below the surface and exposes the index to sharp reversals if sentiment shifts.
- EV headwinds are intensifying as tax credits expire, with Tesla’s warning of “rough quarters” and continued share price decline highlighting lackluster demand and macro sensitivity in previously high-flying growth segments.
- Sectors sensitive to tariffs and regulatory probes (e.g., UnitedHealth, IBM, Honeywell, American Airlines) saw significant declines, signaling the risk that ongoing trade disputes and stricter policy scrutiny can derail rebounds in lagging industries.
- Investor focus on AI earnings may crowd out capital from autos, cyclicals, and insurers, creating bifurcated market dynamics and potential for sharp sectoral corrections if AI optimism wanes or economic data disappoints.
- The uneven sector advances (decliners versus advancers at a 1-to-1 ratio) and mixed Dow performance suggest a lack of uniform conviction; narrow leadership leaves the market vulnerable to negative surprises from mega-cap names or macro events.
- Sticky inflation due to tariffs could force the Fed to pause or delay rate cuts, which may unwind rate-sensitive gains and expose high-multiple stocks to valuation resets.
Bull Case:
- Record highs for the S&P 500 and Nasdaq demonstrate investor conviction that AI-driven growth from major tech firms like Alphabet will continue to power the market, providing a strong backbone for broader equity gains.
- Alphabet’s robust earnings—buoyed by AI investments and double-digit growth across core businesses—reaffirm the sector’s leadership and justify premium valuations, encouraging capital rotation toward tech and communications services.
- Progress on the U.S.-Japan trade deal and positive signals from EU tariff talks ease macro uncertainty, providing support for risk-on sentiment and minimizing the perceived drag from ongoing trade frictions.
- Labor market strength, as reflected in jobless claims falling below expectations, supports consumption and reassures investors that the U.S. economy remains resilient even amid import cost pressures and Fed rate policy in flux.
- Breadth in sector leadership—with seven of eleven S&P groups advancing—suggests rally participation is broadening, reducing downside risk from any single stock or industry setback.
- Further regulatory clarity on tariffs and Fed direction could unlock new sector rotations and keep institutional flows engaged as Q3 earnings approach.
Bear Case:
- The rally is increasingly concentrated in AI-linked tech leaders, while underperformance in key sectors—such as autos (Tesla down nearly 9% and 25% YTD), airlines, and healthcare—reveals fragility below the surface and exposes the index to sharp reversals if sentiment shifts.
- EV headwinds are intensifying as tax credits expire, with Tesla’s warning of “rough quarters” and continued share price decline highlighting lackluster demand and macro sensitivity in previously high-flying growth segments.
- Sectors sensitive to tariffs and regulatory probes (e.g., UnitedHealth, IBM, Honeywell, American Airlines) saw significant declines, signaling the risk that ongoing trade disputes and stricter policy scrutiny can derail rebounds in lagging industries.
- Investor focus on AI earnings may crowd out capital from autos, cyclicals, and insurers, creating bifurcated market dynamics and potential for sharp sectoral corrections if AI optimism wanes or economic data disappoints.
- The uneven sector advances (decliners versus advancers at a 1-to-1 ratio) and mixed Dow performance suggest a lack of uniform conviction; narrow leadership leaves the market vulnerable to negative surprises from mega-cap names or macro events.
- Sticky inflation due to tariffs could force the Fed to pause or delay rate cuts, which may unwind rate-sensitive gains and expose high-multiple stocks to valuation resets.
Investors are eyeing President Trump’s planned visit to the Federal Reserve’s headquarters, which follows months of criticism of Chair Jerome Powell. With the Fed widely expected to hold rates at next week’s meeting, markets assign a roughly 60% chance of a September cut, per CME’s FedWatch. Weekly jobless claims fell to 217,000—well below forecasts—underscoring labor-market resilience even as import tariffs spur renewed inflationary pressures.
Sector breadth was mixed: seven of eleven S&P groups advanced, led by tech and communications services, while decliners edged advancers by a 1-to-1 ratio. The S&P posted 44 new record highs, the Nasdaq 72, against 6 and 37 new lows respectively, signaling selective strength as investors rotate into AI from oversold segments.
This article was originally published on Quiver News, read the full story.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
