Tech stocks led the way higher, with the earnings season for the most-influential segment of the US equity market about to get underway in a test of the more than 10% surge in the S&P 500 from its October low.
(Bloomberg) — Tech stocks led the way higher, with the earnings season for the most-influential segment of the US equity market about to get underway in a test of the more than 10% surge in the S&P 500 from its October low.
Marquee names from Microsoft Corp. to Intel Corp. and Tesla Inc. are due to report results this week, and the industry’s outlook will determine the fate of a sector that has faced a reckoning on Wall Street amid higher rates. More recently, that pessimism has faded as tech firms shift their focus to cost cuts and inflation shows signs of easing, with the Nasdaq 100 extending a back-to-back rally to almost 5%.
Now that improvement in sentiment toward US equities ends up being at odds with a backdrop of weakening economic data, according to Morgan Stanley’s Michael Wilson. His view is as a warning sign after the recent advance in the S&P 500, with the gauge looking expensive compared with historical levels as earnings estimates have been falling for months.
“With the S&P 500 trading at almost 18x forward earnings and 2.3x sales, this does not leave a lot of leeway for disappointments,” said Matt Maley, chief market strategist at Miller Tabak + Co. “With long-term interest rates still trading twice as high as they were at this time last year, it’s going to be tough for the markets to rally much more than they already have if earnings estimates for 2023 come down.”
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As the Federal Reserve enters the blackout period ahead of its Jan. 31-Feb. 1 meeting, markets have priced in a smaller — and more traditional — 25-basis-point hike. Even as several officials say rates must peak above 5% and stay higher for longer, markets remain skeptical. They still don’t believe policymakers will go above 5%, and they see the Fed cutting rates aggressively by the end of the year, according to Anna Wong at Bloomberg Economics.
“Investors should be careful to temper their expectations for premature rate cuts, as the Fed will likely need to keep a restrictive footing on monetary policy throughout the year to fight inflation,” said Jason Pride, chief investment officer of private wealth at Glenmede.
Meantime, Treasury Secretary Janet Yellen said she’s encouraged by progress on inflation, with energy prices and supply-chain issues easing across the globe even as the US labor market remains strong.
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Key events this week:
- PMIs for US, euro area, UK, Japan, Tuesday
- Richmond Fed Manufacturing, Tuesday
- ECB President Christine Lagarde delivers a video message on “the euro as a guarantee of resilience,” Tuesday
- US MBA mortgage applications, Philadelphia Fed non-manufacturing activity, Wednesday
- US fourth-quarter GDP, new home sales, initial jobless claims, Thursday
- US personal income/spending, PCE deflator, University of Michigan consumer sentiment, pending home sales, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 1.3% as of 11:04 a.m. New York time
- The Nasdaq 100 rose 2%
- The Dow Jones Industrial Average rose 1%
- The Stoxx Europe 600 rose 0.6%
- The MSCI World index rose 1.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $1.0873
- The British pound was little changed at $1.2386
- The Japanese yen fell 0.7% to 130.48 per dollar
Cryptocurrencies
- Bitcoin rose 1.5% to $22,921.07
- Ether fell 0.2% to $1,624.23
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.50%
- Germany’s 10-year yield was little changed at 2.18%
- Britain’s 10-year yield declined three basis points to 3.35%
Commodities
- West Texas Intermediate crude rose 0.9% to $82.37 a barrel
- Gold futures fell 0.1% to $1,942.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Vildana Hajric, Isabelle Lee, Peyton Forte and Jan-Patrick Barnert.
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