S&P 500 Forecast: Index begins week flat but should advance toward Friday Nonfarm Payrolls report
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- S&P 500 closed up 1.23% last week to new 2023 high of 4,450.
- The trading week is shortened due to the July 4 holiday in the US.
- Tesla released Q2 delivery data that soared above expectations.
- The US June jobs report, out Friday, is the major data release of the week.
UPDATE: The S&P 500 was flat a half hour into trading on Monday. The index started out the week in the red but has slowly moved back to even. The NASDAQ Composite has added 0.25%. Tesla stock has added 7.5% to trade above $281.
The S&P 500 index begins the week at a new high for the year based on the June 30 close at 4,450. The index has been on a steady upward trajectory since mid-March and shows no signs of stopping.
This quiet week will see a shortened trading schedule as the US Independence Day celebration on July 4 also means that the market will close at 1:00 PM EST on Monday, July 3, as well. With earnings out of the way, traders only have the June jobs report on Friday to look forward to. Monday should see trading begin on a positive note as on Sunday morning Tesla blew away the analyst class with strong delivery and production figures for the second quarter.
At the time of writing in Monday’s premarket, S&P 500 futures are flat, while NASDAQ 100 futures have advanced 0.1%.
S&P 500 News: Tesla delivers another surprisingly healthy quarter
On the back of Federal tax subsidies and CEO Elon Musk’s strategy of major price cuts, Tesla delivered an impressive 466,140 electric vehicles globally in Q2. This was about 5% higher than analysts’ consensus forecast for 445,000 deliveries.
Based on the cross tabs, Tesla sold 446,915 lower-priced Model 3 and Model Ys and 19,225 higher-priced Model S and Model X vehicles.
Maybe even more surprising, Tesla produced 479,700 vehicles in the quarter, which demonstrates how far management has ramped up capacity at its factories in Austin, Texas, Berlin and Shanghai. Tesla delivered 422,875 and produced 440,808 vehicles back in the first quarter of the year.
The delivery figure was 83% higher than one year ago and 10% higher than the first quarter. It now seems that Elon Musk’s remark back in January that deliveries could reach 2 million in 2023 – an idea that seemed implausible at the time – might be achievable. If deliveries continue to rise 10% QoQ in the back half of the year, then Tesla will deliver 1,965,798 total vehicles for the year. A slight uptick in the growth rate would be all that is needed to reach the 2 million target.
For now, consensus still sees full-year deliveries at 1.8 million, but we may see analysts begin to revise their forecasts upward this week due to the Q2 data. Already, Canacorrd Genuity has raised its price target on TSLA stock from $257 to $293.
Tesla’s results could affect the entire market as it shows that consumer demand remains high at a time when many on Wall Street have been nervous about a looming recession. TSLA stock jumped 6.2% in Monday’s premarket to $278 on the news. With Tesla as a large component of its index, the S&P 500 will likely advance on Monday due to its outsized weighting and influence over other growth stocks.
Friday jobs report the pinnacle of a slow data week
The June Nonfarm payrolls report is the largest focus on the economic indicator schedule this week. The consensus calls for a net 200,000 job hires in June, far below the figure from May. Back in May consensus of 190,000 net hires was blown out of the water when the figure from the US Bureau of Labor Statistics reported 339,000 new jobs.
Could the analysts have it wrong once again? That would seem quite likely since much of the recent economic data in June outperformed the average forecast. The outlook for New Home Sales, the Q1 GDP growth rate and the Consumer Confidence Index all had to be revised upward when data was reported last week.
The counter narrative comes from economists, who, broadly speaking, see a tightening credit market and a Federal Reserve sticking to higher interest rates as a recipe for slowing growth.
The day before on Thursday, July 6, ADP will give the market a hint. The company’s research arm will release its projection of the employment change in the US for June, which analysts have pegged at 180,000. The figure in May was 278,000.
The Institute for Supply Management (ISM) will also release two significant data points this week. Its June Manufacturing PMI for the US arrives on Monday after the market closes, and on Thursday it will release its US Services PMI for June. Both indices are expected to improve from May’s numbers.
Earnings of the week
Thursday, July 6 - Levi Strauss (LEVI)
What they said about the market – Michael Gapen
Bank of America economist Michael Gapen acknowledged in an investor note that the US economy has performed better than expected in the first half of the year. This solid performance, however, does not mean the second half of the year will necessarily follow suit.
"We do not expect such robust prints to continue. Momentum in the economy should slow as the lagged effects of tighter monetary policy and financial conditions start to take hold."
S&P 500 forecast
The S&P 500 is back at a new annual high after it rebounded last week from the previous week’s sell-off. With a close at 4,450 on Friday, the expectation will be for it to easily reach 4,500 this week. The index last reached this point when it worked as stubborn resistance in April 2022. Prior to then, the region loosely guarding 4,600 also pushed prices lower back in February and March of last year.
The index is slightly overbought on the Relative Strength Index (RSI), but its sell-off two weeks ago did not last long. Only a severe drop in company earnings or a renewed bout of banking failures have the ability to push this index lower. If the mood does turn sour, then the 4,300 or 4,325 levels should provide it with short-term support. Medium and longer-term support are at 4,100 and 3,800, respectively.
S&P 500 daily chart
