CNBC Daily Open: Tesla soars, S&P closes above 5,500

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

More records
The S&P 500 closed above 5,500 for the first time as Fed Chair Jerome Powell said the central bank had made progress on inflation. The S&P 500 and the tech-heavy Nasdaq Composite closed at record highs, with Tesla soaring 10% after sales fell less than expected. The Dow Jones Industrial Average added 162 points. The yield on the 10-year Treasury slipped as Powell indicated that the bank needs more time before cutting rates. U.S. oil prices dropped back from two-month highs.

Tesla soars
Tesla‘s shares surged 10.2% after the EV maker beat second-quarter production and delivery expectations. However, total deliveries still fell 4.8% year-over-year, though they rose 14.8% from the first quarter. The decline comes as Tesla faces increased competition, particularly in China, and an aging vehicle lineup. To stimulate sales, Tesla has offered various discounts and incentives, such as zero-interest loans for Model 3 and Model Y purchases in China. 

Inflation progress 
Powell said the central bank had made “quite a bit of progress” on inflation over the past year but said he wants to see more before being confident enough to start cutting interest rates. “The last [inflation] reading and the one before it to a lesser extent, suggest that we are getting back on the disinflationary path,” Powell said at a central banking forum in Sintra, Portugal. “We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy.”

Alzheimer drug approval 
The FDA has approved Eli Lilly‘s Alzheimer’s drug, donanemab, expanding treatment options for the nearly 7 million Americans with the disease. Eli Lilly has faced obstacles in its path to market. The FDA rejected the drug’s approval last year due to insufficient data, then surprisingly delayed it again in March. Donanemab will now compete with Biogen and Japanese partner Eisai‘s Leqembi, which gained approval last year.

Paramount bid?
Shares of Paramount Global popped 9% in extended trading after news of a potential deal between David Ellison’s Skydance and National Amusements, Paramount’s controlling shareholder. This preliminary agreement could give Skydance control of Paramount, marking a revival of a previously failed deal. While specific terms remain unclear, the previous deal involved a $2 billion payout to National Amusement’s controlling shareholder Shari Redstone, $4.5 billion for Paramount’s controlling shares and $1.5 billion cash for Paramount’s balance sheet.

[PRO] Conviction list
Goldman Sachs has updated its conviction list for the second half of the year, adding three new stocks to the list of “most differentiated fundamental Buy ideas.” The list includes 10 stocks that Goldman Sachs research analysts believe will outperform the market.

Before this week’s rally in Tesla, the company’s stock price had plunged 20% so far this year, lagging among megacap stocks. Tuesday’s spike came as Tesla beat Wall Street’s delivery and production estimates. However, doubts persist about the sustainability of the stock’s rise, as Tesla’s aging lineup and increased competition force the EV maker to offer deep discounts to attract customers, especially in China.

GM, on the other hand, delivered some of its strongest quarterly numbers in more than three years.

Despite this positive sign, former Ford CEO Mark Fields believes the industry’s growth will slow this year as prices normalize. He warned CNBC of the consequences for automakers and the economy if consumers tighten their belts further:

“If consumers are not really stepping up, the automakers are going to face a very important decision. They’re either going to have to layer in more discounts to move those units to keep their plants running, or they’re going to have to take the difficult decision of reducing production, perhaps cutting shifts, which has a much bigger impact on the automakers and the economy.”

Mohamed El-Erian, Allianz’s chief economic advisor, told CNBC last week, “The household sector no longer has excessive savings or much debt capacity.” He called for the Fed to consider cutting rates in July.

While Fed Chair Jerome Powell said the central bank needs more confidence before cutting rates, Chicago Fed President Austan Goolsbee urged caution with tight monetary policy as the economy softens.

“I see some warning signs the real economy is weakening. It started from a very hot level, it’s weakened to something that’s still quite strong,” Goolsbee said in an interview with CNBC’s Sara Eisen. “But if you’re going to be this restrictive for too long, you’re going to have to start thinking about that real side of the economy.”

Well, Lazard’s chief strategist Ronald Temple expects the Fed to cut rates three times by the end of this year — that’s more than the market is currently factoring in. 

 — CNBC’s Jeff Cox, Alex Harring, Michael Wayland, Lora Kolodny, Spencer Kimball, Pia Singh, Sarah Min, Annika Kim Constantino and Lillian Rizzo contributed to this report.