Tech megacaps powered a stock-market rebound, tempering data suggesting that while the Federal Reserve still has a path to a soft landing, the risk of a recession this year is very much alive.
(Bloomberg) — Tech megacaps powered a stock-market rebound, tempering data suggesting that while the Federal Reserve still has a path to a soft landing, the risk of a recession this year is very much alive.
The S&P 500 closed at its highest since early December. Tesla Inc. topped the $500 billion mark, leading gains in the Nasdaq 100 as Elon Musk teased potential for the carmaker to produce 2 million vehicles in 2023. In late trading, chipmaker Intel Corp. tumbled on a bleak forecast.
US gross domestic product expanded at a faster-than-estimated pace into the end of 2022, but there were signs of slowing underlying demand as the steepest rate hikes in decades threaten growth. The Fed is expected to boost rates by 25 basis points next week amid bets the central bank is approaching the end of its tightening cycle. Yet officials are signaling that rates will stay high through the rest of this year.
The economy continues to be very resilient in the face of rate increases, but plenty of risks lie ahead, so “we wouldn’t be so quick to blow the all clear,” said Chris Zaccarelli at Independent Advisor Alliance.
“That said, this year’s stock-market rally is impressive and shouldn’t be ignored,” the firm’s chief investment officer added. “Unfortunately, the Fed is likely to start talking down the market again, as early as next week, so prepare for volatility. We may be in the eye of the hurricane and not completely out of the woods yet.”
To Chris Gaffney, president of world markets at TIAA Bank, the recent data show the Fed is 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, about 11% above Thursday’s close, before sliding amid an economic contraction. The benchmark is headed for its best January since 2019.
However, it seems like many investors still 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.
Investors fretting about the prospects for global earnings growth may want to brace for a long slog this year, and stiff headwinds to equities as a result.
Analysts’ estimates for 2023 profits continue to fall, with major regions showing negative revision momentum, according to research from Bloomberg Intelligence’s Gina Martin Adams and Gillian Wolff. In the US, for example, sell-side analysts have lowered projections by more than half since September, while the outlook for emerging markets has slumped even more.
Corporate Highlights:
- Visa Inc. and Mastercard Inc. saw purchase volumes on their cards climb less than expected in the final three months of the year.
- Hasbro Inc., one of the world’s largest toymakers, said it would cut jobs after a disappointing holiday shopping season.
- Bed Bath & Beyond Inc. said it received a default notice from JPMorgan Chase & Co. after it failed to prepay an overadvance and satisfy certain creditor protections.
- American Airlines Group Inc. expects profit this year to exceed estimates following a slow start.
- Southwest Airlines Co.’s operations meltdown last month will lead to a first-quarter loss.
- Comcast Corp. topped Wall Street profit estimates in the fourth quarter despite continuing to lose customers in its cable and broadband businesses.
Meantime, Thursday’s auction of seven-year Treasury notes ensured that January will be one of the best months ever for US government debt auctions. The high demand reflects investor wagers that the Fed is nearing the end of its rate hikes as inflation comes down from its peak.
Traders also continued to keep an eye on the latest geopolitical developments.
The International Monetary Fund is exploring a multiyear aid package for Ukraine worth as much as $16 billion to help cover the country’s needs and provide a catalyst for more international funding while Kyiv tries to repel Russian forces, according to people familiar with the matter.
Key events:
- American Express, Charter Communications, Chevron, HCA Healthcare to report results 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 1.1% as of 4 p.m. New York time
- The Nasdaq 100 rose 2%
- The Dow Jones Industrial Average rose 0.6%
- The Stoxx Europe 600 rose 0.4%
- The MSCI World index rose 0.9%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2% to $1.0891
- The British pound was little changed at $1.2412
- The Japanese yen fell 0.5% to 130.23 per dollar
Cryptocurrencies
- Bitcoin fell 2.1% to $23,112.34
- Ether fell 0.6% to $1,608.75
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.49%
- 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 1.2% to $81.10 a barrel
- Gold futures fell 0.6% to $1,946.90 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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