Tech giants' earnings week kicks off in the shadow of an oil shock
Markets are starting the week on a nervous note. US stock indices (S&P 500 and NASDAQ) are searching for direction with investors preparing for earnings reports from the AI and technology sectors. However, sharp fluctuations in oil prices are also having an impact, keeping central bank interest rate expectations elevated.
The price of oil topped $90
The geopolitical crisis in the Middle East and transport disruptions in the Strait of Hormuz have driven up oil prices. On Monday, July 20, the price of Brent crude climbed above $90 per barrel, the highest level since early June. This price increase could once again begin to show up in global inflation numbers, putting pressure on central banks. If oil prices continue to rise, rising energy costs and upward pressure on interest rates could dampen stock market performance.
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Brent, 1 year chart
Brent, 5 year chart
Alphabet and Tesla up next for earnings
After last week's bank earnings were announced, the focus this week is on the "Magnificent 7" companies, with both Alphabet (Google) and Tesla set to release their Q2 reports on Wednesday, July 22, after the market closes.
A key focus regarding Alphabet will be how Google Cloud and AI investments are reflected in earnings alongside traditional search engine advertising. The market is demanding proof that substantial investments in data centers are paying off. Additionally, the rollout and commercialization of the new Gemini 3.5 Pro AI model are under close scrutiny.
GOOGL, 1 year chart
GOOGL, 5 year chart
Heading into the earnings season, Tesla is backed by strong delivery numbers (over 480,000 vehicles in Q2). However investors are particularly interested in profit margins and the outlook for areas beyond the automotive business. Self-driving technology is also emerging as a key theme. Following the earnings release, the options market is pricing in a potential share price move of more than 7% for Tesla this week.
TSLA, 1 year chart
TSLA, 5 year chart
Technical status of indices
The S&P 500 index has performed relatively steadily in recent weeks, even approaching an all-time high. Strong sector rotation is helping to keep the index stable beneath the surface. Rising oil prices now exceeding $90 are providing a significant boost to energy sector stocks helping to balance the movements of the broader index. Meanwhile, growth companies with high valuations, are under pressure from rising interest rates, prompting a shift of capital towards more defensive stocks. From a technical perspective, the index is contending with key short-term moving averages (EMA25, SMA50).
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S&P 500, 1-year chart
S&P 500, 5 year chart
In recent weeks, the technology-focused NASDAQ has underperformed compared to the S&P 500 index. A major contributing factor has been the sharper downward correction seen in the technology and semiconductor sectors. The earnings results and management guidance for the remainder of the year from Alphabet and Tesla could determine whether the correction in tech stocks continues or whether the index establishes a new upward trend. From a technical perspective, the price has clearly drifted below the shorter-term moving averages (EMA25, SMA50), which has weakened the index's technical outlook.
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NASDAQ, 1 year chart
NASDAQ, 5 year chart
Summary
This week will be a key indicator of the direction of the market. If Alphabet and Tesla manage to beat earnings expectations and provide strong forward-looking guidance, hist could be enough to drive the indices higher despite the oil shock. However, if earnings disappoint and the price of oil remains above $90, the stock market could face a deeper correction.
Indicators shown on the graphs:
● SMA200: 200-day moving average, red.
● SMA50: 50-day moving average, blue.
● EMA25: 25-day exponential moving average, yellow.
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