The major U.S. stock indices wobbled on Thursday as investors weighed positive corporate earnings against signs that the U.S. economy is rapidly slowing amid tightening financial conditions. The third quarter reporting period is off to a good start despite previous concerns that inflation and rising interest rates would have a detrimental impact on financial results. So far, most companies have announced better-than-anticipated numbers, with banks, airlines, and some tech firms delivering a healthy performance.

While earnings and forward guidance have been constructive in most cases, headwinds have not dissipated. On this front, U.S. Treasury yields have continued to trend upwards in recent days on hawkish repricing of FOMC policy. In fact, the 10-year note rose to 4.23% this afternoon, its highest level since 2008 after Fed officials noted that interest rates will rise “well above” 4% this year due to stubbornly elevated core inflation and tight labor markets.

At the close, the Dow and the S&P 500 posted losses of 0.30% and 0.80% respectively though several key companies bucked the trend. For instance, AT&T and IBM staged a solid rally after announcing outstanding third-quarter results. AT&T ended with a gain of 7.72% and 4.72% for IBM.

As for the Nasdaq, yesterday’s news that Tesla will miss its target for vehicle deliveries this year also weighed negatively on the tech-heavy index. At the close, Tesla lost 6.64% and the index fell 0.51%.

TECHNICAL OUTLOOK

From a technical standpoint, the S&P 500 opened with a gap to the downside on Thursday but gained ground at the open in response to events outside the United States. The resignation of British Prime Minister Truss led to a brief pullback in yields, providing some support for an unconvinced market. Despite these intra-session moves; the underlying picture remains bearish for stocks as higher rates should create a hostile environment for risk assets. Looking at the daily chart, initial resistance appears around 3,805, an area defined by October’s high and the 38.2% Fibonacci retracement of the 2022 sell-off. On the downside, support may be found near 3590-3600; a closure below this range might give the bears greater control.

S&P 500 (ES1) Mini Futures Daily Chart

(Click on image to enlarge)

S&P 500 Mini Futures Chart. Prepared UsingTradingView

Looking ahead, according to FactSet, 165 of the 500 companies of the S&P 500 are expected to report earnings next week. Apple, Alphabet, and Amazon are included in this list. Similarly, flash PMI, consumer confidence, the advanced GDP price index, durable goods orders, and core PCE will provide an up-to-date assessment of the status of the U.S. economy.

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