The S&P 500 (SPX) surged on Tuesday following much stronger-than-expected financial results from Home Depot (HD), states Jon Markman, editor of Strategic Advantage.

The home renovation giant beat estimates on both the top and bottom lines, and raised guidance for the rest of the year.

It was the catalyst bulls needed to finally begin buying. Some nervous short covering late in the session lifted the index to the best levels of the day. Bulls should not get too excited, though. While the gains on Tuesday for the benchmark were encouraging, there is a lot of heavy lifting just ahead.

I wrote Friday that bears were likely to concede a rally back to the first overhead resistance level at 4,115. That test is now only 0.7% away. You can bet that bears are ready to reload short positions into further strength

The wildcard is technology. The sector is deeply oversold and far out of favor with professionals. If there is any reflexive bounce in tech the S&P 500 might spurt beyond 4,115, toward the 20-day moving average up at 4,140. Critical support for the benchmark remains at 3,950.

The Upshot

The Dow (DOW) was up 1.3% at 32,654.59, while the Nasdaq Composite (IXIC) was 2.8% higher at 11,984.52. Barring consumer staples, all sectors were in the green, with technology, materials and financials leading the gainers.

Breadth favored advancers seven-one, and there were 84 new highs vs 254 new lows. Big caps on the new high list included Exxon (XOM), Chevron (CVX), Merck & CO (MRK), Shell (SHEL), and Bristol-Myers (BMY).

The US ten-year yield jumped by 10.5 basis points to 2.98%. West Texas Intermediate crude oil futures fell by $2.32 to $111.88 per barrel.

Industrial production expanded by 1.1% in April, compared with expectations for a 0.5% increase in a survey compiled by Bloomberg. Retail sales increased 0.9% in April following an upwardly revised 1.4% increase in March, the Census Bureau said. The consensus was for a gain of 0.8%, so it was a big upside surprise.

"For the [Federal Reserve], ongoing positive spending activity reinforces the [Federal Open Market Committee] notion the economy is strong and strong enough to withstand a further backup in rates," Stifel Nicolaus chief economist Lindsey Piegza said in a note. In other words, there is still potential for a proverbial “soft landing.”

In company news, Walmart (WMT) lowered its fiscal 2023 profit outlook after reporting mixed first-quarter results that were pressured by supply chain disruptions, increased costs, and persistent inflationary pressures. Its shares slumped 11.4%, one of the steepest decliners on the S&P 500 and the Dow.

Advanced Micro Devices (AMD) shares jumped 8.7% after Piper Sandler upgraded the chipmaker to overweight from neutral and raised its price target to $140 from $98. You know we are big fans of AMD.

Tesla (TSLA) chief executive Elon Musk said his $44 billion takeover deal for Twitter (TWTR) "cannot move forward" until the social media giant shows proof that the number of fake/spam accounts is below 5%. Oh, brother–this is going to get nasty and weird.

In other news, Tony Dwyer of Dwyer Strategy noted that the market bounce today combined with strong Friday performance brought the S&P 500 nearly 4% above the 2022 losing low it hit last Thursday. "Stocks were helped by better China headlines (Shanghai Covid trends, easing crackdown on big tech, more policy support, JPMorgan upgrade), while some afternoon strength followed an interview where Fed Chair Powell supported the 50bp hiking path. Also, some help today from better-than-expected April retail sales data and more signs of economic normalization momentum.”

Dwyer, who has a good track record for big calls, is expecting better economic data to spark a good old-fashioned summer rally.

Learn more about Jon Markman here...