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Can Q3 earnings keep pushing the S&P500 above all-time highs?

Analysts hail Tesla as a company that does not make money, so its recent push to a $1trillion market capitalization is unprecedented. As of this writing, more than 140 S&P 500 companies have reported earnings, and nearly 82% have beaten Wall Street's estimates, according to Refinitiv data. That's a much higher percentage than the historical average of 66% and the S&P500 reaching new all-time highs reflects the current bullishness in the markets.

S&P500 Index Analysis

Tesla's market cap surpassed $1 trillion on Monday thanks to a great earnings report and a large car order from rental company Hertz. This has now propelled CEO Elon Musk to become the richest person in history. Forbes magazine estimated Musk's net worth at $271.3 billion as of Monday's market close, which is a gain of $41.7 billion from Friday. The increase in personal wealth is calculated on the 13% jump in Tesla stock, as well as over 16 million new stock options, valued at $16.1 billion, awarded to Musk on Tesla's latest earnings report.

Musk is likely to use this as an opportunity to post a Tweet or two but after he stated last year that he would give away most of his physical possessions, including half a dozen California mansions, there is probably little else to report. Musk currently lives in a folding, prefabricated rental house in Boca Chica, Texas, where SpaceX produces their Starships.

Jeff Bezos, founder, and former CEO of Amazon topped the Forbes 400 ranking of the USA’s richest people earlier this month with an estimated $201 billion fortune, but the numbers are getting so crazy now that it’s hard to fathom what any of this really means. Luckily these rich individuals are pushing for new goals for mankind, exploring new frontiers, and developing new technologies, which will hopefully benefit us all. Though it would be interesting to see what they could achieve on earth before flying off into the darkest corners of the galaxy.

The Amazon stock prices have been trading in a range all year and are currently around the median price level. The trend is overall higher, but it is not a Stella performance considering we’ve all adapted to online shopping more since the lockdowns.

What is clear, is that money is flowing into smaller pockets of the economy and the disparity between the richest 1% and the rest of us is beyond comprehension. The proposed Billionaire tax could be one way of funding Biden's spending packages, but I am not sure the elite are going to be willing to give up their wealth that easily.

It could be that Hertz Global Holdings' decision to order 100,000 Tesla’s by the end of 2022 will be good for both companies. For Tesla, the order is the largest ever placed by a rental car company. Hertz is emerging from bankruptcy and the 100k order, which may total more than $4 billion, demonstrates its current financial strength. Hertz’s fleet expansion is also likely to receive premium rental prices for the Tesla’s, so analysts will be keen to see what increase in margin this investment brings. Hertz's is likely to also add to its extensive customers base as the chance to sample a Tesla will be a big draw, with these customers potentially converting to becoming customers for Tesla.

Investment into Hertz could be encouraged by this new move into EVs as ESG investment narratives are becoming more important to investors. Making 20% of your fleet electric gives Hertz a competitive advantage over other car rental companies.

The S&P500 futures (ES) traded lower during the overnight Globex session on Monday and closed higher during regular trading hours. Tuesday’s session traded higher in the Globex session but then closed near the US sessions open, showing possible profit-taking after making a new high. Looking at the cash index the S&P500 has closed higher 8 times out of the last 10 days and the weekly tone of the S&P500 is bullish, but yesterday’s candle could be interpreted as a bearish reversal signal. The overall volume in the futures is exceptionally low at 978,000 contracts, which has been in decline for the last three or four days, so this could be coming to a grinding halt soon if we can’t attract more buyers. Often big IPO’s or events like the Tesla share price hitting a big round number can be market tops. If this is the top a pullback to the 50% Fibonacci level would see the S&P500 trading around 4461 again.

Deutsche Bank analysts are calling for a less optimistic outlook based on the current US earnings reports. “At the moment, our team sees earnings on track to being flat to down sequentially by -0.2% to -2% [quarter-over-quarter, seasonally adjusted in Q3], marking the first drop since Q2 2020,” Deutsche Bank economist Jim Reid wrote this week.

The headline figures for Q3 of >80% of companies beating earnings expectations suggest things are good for the corporations. So, it comes down to Q4 and the upcoming calendar year for investors and speculators alike to figure out how much upside there is to the equity markets.

US fiscal flows from the government to the non-government peaked in March 2021 and then reduced by nearly 50% over the course of the following months. This month is likely to be a $500billion month, so above the pre-pandemic averages and therefore could be supportive of the indices. Also on the rise are loans and leases from commercial banks. With loans and leases in bank credit bottoming out during the Spring of 2021, this current increase could be good for bank profits and the economy alike. These bank loans could also accelerate if the banks can drain their reserves, freeing up some space on their balance sheets. The US Treasury can issue new debt following the lifting of the debt ceiling until December 2021, so debt issuance and auctions could also give a clue of whether we’re at the top or not.

My current trade idea for the S&P500 is to trade the initial balance breakout. The initial balance range is the high and low of the first hour of regular hours trading and a breakout of that can be a profitable trade if targeting a 50% extension. The last 3 days have hit the target and I am of the belief that the trade has a 66% probability of working out generally. For an idea of which way, the markets could be heading, keeping an eye on the FAANG stocks and Microsoft works well as they form a large portion of the index weighting.

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