A rally in megacaps put stocks back in the green, tempering data suggesting that while the Federal Reserve still has a path to a soft landing, the risk of a recession this year is still very much alive.
(Bloomberg) — A rally in megacaps put stocks back in the green, tempering data suggesting that while the Federal Reserve still has a path to a soft landing, the risk of a recession this year is still very much alive.
After swinging in both directions, the S&P 500 pushed toward its highest since early December. Wall Street also had to contend with a fresh bag of corporate results. Tesla Inc. led gains in the Nasdaq 100 as Elon Musk teased potential for the carmaker to produce 2 million vehicles this year. Meantime, International Business Machines Corp. tumbled on disappointing cash flow.
The US expanded at a faster-than-forecast pace into the end of 2022, but there were signs of slowing underlying demand as the steepest Fed hikes in decades threaten growth. A separate report pointed to a resilient economy — rather than one on the verge of a slump — with weekly jobless claims unexpectedly falling.
“The Fed has a balancing act in here to try to get that soft landing,” said Chris Gaffney, president of world markets at TIAA Bank. “It’s just how much are they going to be able to tweak the economy just enough to get the slowdown, without sending us into a major recession. The data show that they’re doing a good job, but there’s more work to be done.”
A team led by Deutsche Bank AG’s Binky Chadha is maintaining its view that the S&P 500 can rise to 4,500 by the end of the first quarter, 12% above Wednesday’s close, before slumping amid an economic contraction. That’s even as the benchmark is headed for its best January since 2019.
“We view the rally as having further to go,” the strategists wrote. “While a number of leading indicators have fallen steeply, raising the alarm, there are several reasons for a continued pushing out of the timing of a potential recession.”
However, it appears many investors don’t have the appetite to chase the rally. Some 35% of clients in a recent JPMorgan Chase & Co. survey said they plan to add to stock holdings in the coming weeks. That’s a hair away from a 33% reading in late November that marked an all-time low.
Corporate Highlights:
- American Airlines Group Inc. expects profit this year to exceed estimates following a slow start, as steady demand for air travel keeps an industry recovery going into 2023.
- Southwest Airlines Co.’s operations meltdown last month will lead to a first-quarter loss as the fallout extends into 2023 from a fiasco that led to thousands of canceled flights and prompted a federal probe into its operations.
- Lam Research Corp., one of the three biggest providers of chip-manufacturing equipment in the US, is cutting about 7% of its workforce to reduce expenses in a declining market.
- Mastercard Inc. warned revenue growth would slow even faster than expected this quarter, stoking fears that inflation has put a damper on consumer spending.
- Comcast Corp. topped Wall Street profit estimates in the fourth quarter despite continuing to lose customers in its cable and broadband businesses.
Key events:
- Earnings for the week include: American Express, Charter Communications, Chevron, HCA Healthcare (Friday)
- 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 0.4% as of 1:06 p.m. New York time
- The Nasdaq 100 rose 1%
- The Dow Jones Industrial Average rose 0.1%
- The MSCI World index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.4% to $1.0869
- The British pound fell 0.2% to $1.2381
- The Japanese yen fell 0.5% to 130.27 per dollar
Cryptocurrencies
- Bitcoin fell 2.6% to $22,975.13
- Ether fell 1.7% to $1,591.31
Bonds
- The yield on 10-year Treasuries advanced three basis points to 3.47%
- Germany’s 10-year yield advanced six basis points to 2.22%
- Britain’s 10-year yield advanced seven basis points to 3.32%
Commodities
- West Texas Intermediate crude rose 1.7% to $81.49 a barrel
- Gold futures fell 0.8% to $1,943.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Cecile Gutscher, Sujata Rao, Isabelle Lee, Vildana Hajric and Peyton Forte.
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