Wall Street closed sharply higher, capping another strong week with gains led by Apple and others, delivering profits throughout the summer that were even larger than expected.
The S&P 500 index rose 2.5% on Friday and marked its first consecutive weekly gain since August. Stocks have rebounded recently in part on hopes of turning lower later this year in the wake of major interest rate hikes that have rocked markets.
Recently, many large US companies have reported higher-than-expected earnings, although the business situation remains mixed. Apple, Intel and Gilead Sciences jumped on the back of strong reports, helping to offset poor forecasts from Amazon.
One reason for the recent resurgence in stocks is hopes of a “pivot” by the Federal Reserve, where the central bank eases the big interest rate hikes that have rocked markets. Such a move could boost the market, but many analysts say such hopes may be overdue.
“This rally has now become irrational and fragile to this extent,” said Liz Young, investment strategist at SoFi.
Stocks or bonds? This is the place to put your money when recession fears flare up
The central bank has been very clear about their plans that have gone wrongly too far to contain inflation, she said, which means big gains as hopes of a price cut appear soon.
Recently, many large US companies have reported higher-than-expected earnings, although the business situation remains mixed.
Apple jumped 7.4% and was the strongest force lifting the S&P 500 in its first session after reporting worse-than-expected revenue and profit for the latest quarter. Intel rose 10.2% after delivering a profit much larger than analysts’ forecasts even though it said it had seen “economic conditions getting worse”.
Gilead Sciences rose 12.5% and T-Mobile US gained 7.6% after they also topped Wall Street’s profit expectations.
They helped offset a 7.2% decline for Amazon, which delivered a lower-than-expected upcoming revenue forecast. It’s the latest Big Tech company to be beaten this week after reporting some discouraging trends. It’s a dramatic change after the conglomerate dominated Wall Street for years with seemingly unstoppable growth.
Money Matters with the Baun Investment Team at Wellington-Altus Private Wealth
Earlier in the week, Meta Platforms lost nearly a quarter of its value after it reported a second consecutive quarter of revenue decline amid falling ad sales and stiff competition from TikTok. Microsoft and Google’s parent company also reported slowdowns in key areas.
Such woes have created a sharp divide on Wall Street this week, between lagging Big Tech stocks and the rest of the market. Nasdaq, home to many high-growth tech stocks, is on track to gain 2.1% this week. It would have had an even worse performance without Apple’s push from Friday. Meanwhile, the Dow is surging to a 5.7% gain for the week as it is less focused on technology.
Rising interest rates weighed on Big Tech stock’s price relative to the rest of the market, and pressure mounted on Friday as yields rose.
“Markets still don’t seem to want to believe that we could end up in a place where there could be an earnings recession,” Young said.
Data released this morning showed that the gains US workers received in wages and other compensation over the summer were in line with economists’ expectations. That should keep the Fed on track to keep raising interest rates aggressively in hopes of weakening the job market enough to reduce the nation’s high inflation. Other data shows that the Fed’s preferred measure of inflation remains very high and that US households continue to spend more in the face of it.
The Fed is trying to limit inflation on purchases by households and businesses needed to keep it high. It is doing that by deliberately slowing down the economy and the job market. The worry is that it could go too far and trigger a sharp downturn.
The Fed raised its benchmark overnight benchmark rate to about 3% to 3.25%, up from near zero in March. The broad expectation is that it will outpace another rally of three times its usual size next week, before it is likely to produce a smaller gain in December. Higher rates will not only slow the background. economy but also affect the prices of stocks and other investments.
Yields on two-year Treasuries, which tend to track expectations for Fed action, rose to 4.42% from 4.28% late Thursday.
The 10-year yield, which helps set interest rates on mortgages and other loans, rose from 3.93% to 4.01%.
Twitter’s stock trade has ended, after Elon Musk took control of the company after a lengthy legal battle.
In Europe, stock indexes were mixed in relatively quiet trade.
Shares in Tokyo fell 0.9% even as the government passed a massive stimulus spending package to help the world’s No. 3 economy cope with inflation. As expected, the Bank of Japan ended its policy meeting by keeping its extremely loose monetary policy unchanged even amid higher inflation forecasts.
& copy 2022 Canadian Press