S&P 500, Nasdaq Hit Records as Tech Earnings Fuel Rally

U.S. equities closed mixed on Thursday as the S&P 500 achieved its fourth record high in a row, propelled by robust second-quarter earnings from leading technology firms. The S&P 500 inched up 0.1% to secure a new all-time closing high, while the Nasdaq Composite also rose 0.2% and set a fresh record. The Dow Jones Industrial Average lagged the broader indices, closing down 0.6% due to post-earnings slumps in IBM and Honeywell.

Market enthusiasm centered on the tech sector, with Alphabet (Google’s parent company) delivering a standout quarter and reinforcing investor faith in artificial intelligence as a primary growth engine. Alphabet’s performance, along with rising shares of Nvidia, sustained the bullish momentum in tech-heavy indices.

Alphabet’s Blowout Quarter Highlights AI Strength

Alphabet’s Q2 earnings report left Wall Street impressed, exceeding expectations and showcasing the effective monetization of its significant AI investments. CEO Sundar Pichai emphasized AI as the driving force behind innovation across Google’s entire suite of products. Notably, the company revealed:

• Search revenue growth of 10%, with AI-powered Overviews driving significant engagement (2 billion monthly users)
• Cloud revenue increased 26% year-over-year
• Gemini app surpassing 450 million monthly active users
• R&D and infrastructure capital expenditure guidance raised to $85 billion, focused on server and data center expansion for AI workloads

Despite concerns about AI’s effect on traditional search revenue, analysts remain confident—Bank of America and RBC Capital raised their price targets for Alphabet, citing solid Search results and the company’s deft navigation of the AI transition.

Tesla Stumbles Amid Tough Environment and Policy Headwinds

In contrast to Alphabet’s success, Tesla shares plummeted 8% after the automaker reported lower-than-anticipated earnings and revenue. CEO Elon Musk warned of “a few rough quarters” ahead, citing the imminent expiration of electric vehicle tax credits—prompted by President Trump’s budget bill—and persistent weakness in European sales. June marked the sixth consecutive monthly sales decline for Tesla in the EU, down 23% year over year.

Compounding the pressure, CFO Vaibhav Taneja flagged limited vehicle supply and uncertainty in fulfilling delivery orders in the U.S. for the remainder of the quarter. Tesla plans to ramp up production of a new more affordable EV model once incentives expire, but in the near term, the company faces both regulatory and macroeconomic headwinds.

IBM, Airline Stocks Slide on Disappointing Results

The Dow was dragged lower by IBM, which dropped 6% after software sales disappointed, despite beating total revenue and earnings estimates. While earnings per share reached $2.80 versus expectations of $2.73, and infrastructure revenue benefited from AI-focused mainframes, the lack of a Q3 forecast and lagging software demand prompted a sell-off.

Airline stocks Southwest (LUV) and American Airlines (AAL) fell sharply—12% and 6%, respectively—after both carriers slashed profit forecasts and reported weak domestic demand. Southwest reduced full-year EBIT guidance by more than half, attributing the shortfall to soft consumer spending, macroeconomic uncertainty, and trade-related headwinds. American Airlines echoed these challenges, pointing to a 6% decline in domestic revenue in the last quarter, although management anticipates a gradual recovery in the latter half of the year.

Tariffs and Global Trade Policy in Focus

Beyond earnings, trade and tariff developments remain at the forefront for investors. President Trump signaled a new baseline tariff rate of 15% as “reciprocal” tariffs set to take effect on August 1, potentially raising costs for most imports from Europe, pending an agreement that would reduce the initial threat of a 30% levy. These policy shifts come on the heels of a new U.S.-Japan trade pact, which has supported gains among select semiconductor and EV suppliers.

Additionally, the Federal Reserve faces mounting scrutiny. In anticipation of President Trump’s unusual visit to the central bank—amid his public criticism of Chair Jerome Powell—a money manager filed a lawsuit demanding transparency in the Fed’s monetary policy meetings, citing a 1976 federal law. The legal challenge, combined with political pressure over multi-billion-dollar renovations at Fed headquarters, adds to policy uncertainty as the central bank prepares for its next interest rate decision.

Jobless Claims Signal Resilience But Caution

While market volatility persists, U.S. labor market data provided a modest silver lining. Initial jobless claims fell to 217,000 for the week ending July 19, the lowest since April and a sign of ongoing resilience in employment. However, continuing claims remain elevated near their highest levels since 2021, suggesting it’s taking longer for job seekers to find new roles—a point of caution for economists tracking consumer health and spending power.

Meme Stocks, Chipmakers, and Other Movers

Elsewhere, the risk-on mood was evident among retail investors fueling a new wave of meme stock rallies—shares of Opendoor, Kohl’s, and Krispy Kreme surged, echoing previous speculative frenzies seen with GameStop and AMC. In the chip sector, Wolfspeed and T-Mobile posted strong premarket gains buoyed by sector tailwinds and favorable trade news, while STMicroelectronics tumbled 10% after a surprise quarterly loss linked to auto sector weakness. All eyes are now on upcoming reports from Intel and other chip giants for signs of cyclical recovery amid ongoing tariff uncertainty.

Outlook: AI Remains the Market’s Key Storyline

Looking ahead, analysts remain bullish on tech’s future. The “AI trade” continues to provide resilience for Big Tech amid broader market uncertainty, with the sector’s relentless investment in compute infrastructure and generative AI likely powering new chapters of growth. As Wedbush’s Dan Ives put it: “After navigating tariff and geopolitical storms, tech stocks may be poised for another move higher in what some are now calling a ‘golden age’ for the tech world.”

As earnings season continues, investors will be closely watching for further evidence of AI’s impact—not just in core tech, but across industries—as well as any shifts in global economic policy that could alter the market’s record-setting trajectory.