Wall Street shrugged 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.
(Bloomberg) — Wall Street shrugged 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.
The Nasdaq 100 headed toward its best week since November, with heavyweights like Tesla Inc. and Facebook parent Meta Platforms Inc. climbing at least 3.3%. That’s even after a bleak forecast from chipmaker Intel Corp. that followed worrisome remarks from giants like Microsoft Corp. and Texas Instruments Inc. in the past few days.
Traders found solace in data showing the Fed’s preferred inflation measures eased in December to the slowest annual pace in over a year and spending fell. A separate report 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.
Former Treasury Secretary Lawrence Summers urged the Fed to refrain from signaling its next move after an expected hike next week because of the economy’s highly uncertain 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, chief investment officer 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 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, head of product and investment strategy 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:
- 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 $75 billion share-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.
- Hasbro Inc., one of the world’s largest toymakers, said it would cut 15% of its workforce, after a disappointing holiday shopping season.
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 has climbed about 6% this month, and 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 0.4% as of 1 p.m. New York time
- The Nasdaq 100 rose 1%
- The Dow Jones Industrial Average rose 0.3%
- The Stoxx Europe 600 rose 0.3%
- The MSCI World index rose 0.4%
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 0.2% to 129.91 per dollar
Cryptocurrencies
- Bitcoin rose 0.6% to $23,210.35
- Ether rose 0.2% to $1,605.83
Bonds
- The yield on 10-year Treasuries advanced three basis points to 3.53%
- 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 1.7% to $79.63 a barrel
- Gold futures fell 0.1% to $1,944.70 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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