(Bloomberg) — Wall Street brushed off disappointing outlooks from some of the world’s largest technology companies to push stocks higher on speculation of smaller Federal Reserve hikes as inflation shows signs of easing.
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The nascent year’s tech resurgence gave the Nasdaq 100 its best week since November — with Tesla Inc. and Facebook parent Meta Platforms Inc. climbing at least 3% Friday. The gauge also notched its fourth straight weekly advance. That’s even after a bleak forecast from Intel Corp. that followed recent worrisome remarks from Microsoft Corp. and Texas Instruments Inc.
Looking into next week, heavyweights Apple Inc., Amazon.com Inc. and Meta are set to report their quarterly figures, and investors will get a sense on whether market projections are still too rosy as the economy slows down.
The megacaps that have reported so far have mostly beaten estimates by a small margin, said Dennis DeBusschere, founder of 22V Research. “Strong results from these names will help keep index level estimates from deteriorating too far.”
Companies in the S&P 500 that have exceeded projections on both earnings per share and sales have outperformed the benchmark by an average of 1.45% within a day of reporting, exceeding the norm of the past six years, according to data compiled by Bloomberg Intelligence.
And those that fell short underperformed by just 1.7%, the least negative reaction in eight quarters, as many companies are taking steps to adjust to shifting business conditions.
Also helping sentiment on Friday was a report showing the Fed’s preferred inflation measures eased in December to the slowest annual pace in over a year and spending fell. Separate data from the University of Michigan showed US inflation expectations continued to retreat in late January, helping boost consumer sentiment.
The central bank watches long-term views especially closely, as expectations can become self-fulfilling and lead to higher prices.
Treasury Secretary Janet Yellen said she’s encouraged by recent data on inflation and jobs, but conceded the economy is at risk of recession. Former Treasury Secretary Lawrence Summers urged the Fed to refrain from signaling its next move after an expected hike next week because of the highly uncertain economic outlook.
“The market has been rallying on the idea that inflation is whipped. But I’m not so sure it’s settled yet,” said Kara Murphy at Kestra Investment Management. “When you think about how monetary policy works, it’s generally slow. Imagine trying to turn the Titanic way in advance of the iceberg — you have to start long before the iceberg is right in front of you, and you can’t always be sure how the economy is going to react.”
Hopes are high for the Fed to deliver a 25 basis-point increase on Feb. 1 — shifting away from last year’s bigger moves — but expectations for end-2023 rate cuts are “a step too far,” according to Erick Muller at Muzinich & Co.
“We will probably see the Fed say ‘we are entering the final phase, but listen carefully guys: we will continue to raise rates,’” Muller said. “A lot of volatility in rates will depend on the path of inflation from here.”
Corporate Highlights:
Bed Bath & Beyond Inc.’s efforts to find a buyer in bankruptcy have stalled, potentially putting it on a path toward liquidation as it faces a Chapter 11 filing, according to people with knowledge of the matter.
American Express Co. predicted that revenue and earnings for this year will surge well above what analysts estimated.
Chevron Corp. posted disappointing results just days after surprising investors with a mammoth buyback program.
Colgate-Palmolive Co. sold fewer personal-care and household products than expected at the end of last year.
Goodyear Tire & Rubber Co. will eliminate about 500 jobs in response to weak demand and rising inflation.
US equities have flown in the face of many dire signals this year, from recession fears to weak earnings. Yet a peek into the trading activity behind the benchmark suggests the bullish run lacks conviction.
Flows into the SPDR S&P 500 ETF Trust (ticker SPY) show that, while the fund is on pace to see net inflows in January after two straight months of investors taking assets out, the total amount of money coming in weekly has been steadily declining this month. Flows into two other major funds tracking the S&P 500 — the Vanguard S&P 500 ETF (VOO) and IShares Core S&P 500 ETF (IVV) — tell a similar story.
The S&P 500 is on pace for its second-best January since the turn of the century, trailing only the 7.9% jump in 2019.
If history is any guide, the gauge is also likely to be in the green on Dec. 31, as the direction in the first month — a gain or loss — has matched the annual result two-thirds of the time since 1973. The positive-positive periods delivered a full-year average gain of 20%, while the negative-negative years saw a typical decline of 17%.
Some of the main moves in markets:
Stocks
The S&P 500 rose 0.2% as of 4 p.m. New York time
The Nasdaq 100 rose 1%
The Dow Jones Industrial Average was little changed
The Stoxx Europe 600 rose 0.3%
The MSCI World index rose 0.3%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro fell 0.2% to $1.0867
The British pound fell 0.1% to $1.2392
The Japanese yen rose 0.3% to 129.88 per dollar
Cryptocurrencies
Bitcoin rose 0.2% to $23,132
Ether fell 0.1% to $1,600.62
Bonds
The yield on 10-year Treasuries advanced two basis points to 3.51%
Germany’s 10-year yield advanced two basis points to 2.24%
Britain’s 10-year yield was little changed at 3.32%
Commodities
West Texas Intermediate crude fell 2% to $79.41 a barrel
Gold futures fell 0.1% to $1,944.50 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Cecile Gutscher, Sujata Rao, Stephen Kirkland and Vildana Hajric.
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Source: https://finance.yahoo.com/news/asia-stocks-rally-tech-pulls-231753998.html