Wall Street piles more onto big start to year as tech surges
Wall Street’s bang to start the year got even bigger Thursday, as tech stocks and a surge for Facebook’s parent company led the market higher.
The Standard & Poor’s 500 rallied 1.5% a day after hitting its highest level since August. The Nasdaq composite soared 3.3%, while the Dow Jones industrial average lagged because it has less of an emphasis on tech. It slipped 0.1%.
Meta Platforms was helping to lead the way with a 23.3% leap after it reported better revenue for the latest quarter than analysts expected and said it expects to spend less this year than earlier forecast. Although its latest profit fell short of expectations, Facebook’s parent announced a program to buy back $40 billion of its stock, which puts cash directly in the pockets of shareholders.
The tech giant, which is now concentrating on building the ‘metaverse,’ has been contending with faltering revenue and broader woes in the industry.
Stocks had already been on the upswing through the start of the year on hopes that the Federal Reserve will soon pause its interest rate increases. The aim of the hikes is to help stamp out inflation, but they also hurt the economy and investment prices.
A day earlier, stocks and bonds took off after Fed Chair Jerome H. Powell said the central bank is finally starting to see progress in its battle against inflation. Markets took that as a cue that a pause may be imminent, and investors even raised bets for a cut in interest rates late this year. Rate cuts act like steroids for markets, juicing prices and providing support for the economy.
That’s despite Powell saying Wednesday that a couple of more rate hikes will probably be appropriate to get inflation down to the Fed’s target. He also said he did not foresee any rate cuts in 2023 and again pledged to “stay the course until the job is done” on beating inflation.
The Federal Reserve extended its fight against high inflation Wednesday by raising its key interest rate by a quarter point, its eighth hike since March.
“The market is saying the Fed may have its cake and eat it too: Inflation falling and growth not falling off a cliff so far,” said Ella Hoxha, senior investment manager at Pictet Asset Management.
She said the market seems to be putting a 75% probability on the Fed engineering a “soft landing” for the economy, with inflation dropping from its soaring heights without sending the economy into a painful recession.
“We would say at best it’s 50%, potentially lower,” Hoxha said.
She said there’s still a risk that the Fed will have to hold a tougher line on rates than markets expect if the U.S. labor market remains tight. That gives her pause as stock and bond prices rally so strongly around the world.
“It does feel like the market wants to pick pennies in front of a steamroller,” she said.
Thursday’s rally stretched across the Atlantic, where markets rose after central banks for Europe and the United Kingdom also raised rates in their efforts to squelch inflation.
The European Central Bank raised its key rate by a 0.50 percentage point and said another would arrive next month. The Bank of England also raised its key rate by half a percentage point.
European stocks rallied, with the German DAX returning 2.2%. The FTSE 100 in London was up 0.8%.
Moves in Asia were more modest, with Hong Kong’s Hang Seng down 0.5% and Japan’s Nikkei 225 up 0.2%.
On Wall Street, big jumps for several big tech stocks helped lift the market ahead of their earnings reports, which came after trading closed for the day. Amazon and Google’s parent company, Alphabet, both jumped more than 7%, while Apple rose 3.7%.
Each tumbled back in after-hours trading, though, after the companies released results seen as disappointing by investors. Because these stocks are among the biggest by value, their movements carry more sway on the S&P 500 and other indexes.
The next milepost for the market is Friday morning’s U.S. jobs report, which economists expect will show a slowdown in hiring. The job market has largely remained resilient even in the face of swift rate increases by the Fed over the last year.
Big tech companies have announced high-profile layoffs recently, but a report Thursday suggested job cuts are not that widespread. Fewer workers applied for unemployment benefits last week than expected, and the number dropped to its lowest level since April.
Treasury yields were holding steady Thursday after falling in previous days, an indication of expectations for an easier Fed. The yield on the 10-year Treasury, which helps set rates for mortgages and other loans, fell to 3.40% from 3.42% late Wednesday. The two-year yield, which moves more on expectations for the Fed, held at 4.10%.
The S&P 500 rose 60.55 points to 4,179.76, the Dow fell 39.02 points to 34,053.94 and the Nasdaq shot up 384.50 points to 12,200.82.
AP writers Joe McDonald and Matt Ott contributed to this report.
