What happened

Shareholders of Twilio (TWLO -1.88%) beat the market this week as the stock gained 12% through Thursday trading. That boost compared to a 2.3% rally in the S&P 500, according to data provided by S&P Global Market Intelligence. It wasn't enough to erase much of the cloud software specialist's 2022 losses, though, and the stock is still down over 70% this year.

This week's rally was sparked by rising optimism about the economy, which might be reflected in Twilio's upcoming earnings report.

So what

Bank of America joined several of its industry peers in issuing a surprisingly strong third-quarter earnings update this week. Consumer spending remains strong, the bank said, even though growth rates have slowed in recent months. This news caused the bank stock to jump, and it also helped push tech stocks higher.

Twilio's shares have been falling harder than the market in 2022 on fears that a recession might crimp its growth. As a result, the stock tends to see amplified rallies when Wall Street turns more optimistic, as it did this week.

Now what

Twilio executives said back in early August that they were confident in their growth trajectory after sales jumped 41% in the second quarter. The third-quarter update, slated for early November, will show whether that confidence has waned in the intervening months.

If Twilio can demonstrate continued strong demand for its customer communications platform among enterprises, then the growth stock might continue rising into late 2022. Yet the company will likely have to pair that good news with progress at marching toward profitability. It generated an operating loss of $212 million last quarter.

Executives in August projected that third-quarter sales would land near $970 million, equating to organic growth of about 30%. Reaching or surpassing that target would be the next step in Twilio's plan to move toward profitability while expanding its sales footprint into 2023.