(Bloomberg) — A rally in the world’s largest technology companies lifted stocks, with Wall Street also breathing a sigh of relief after the latest inflation data came roughly in line with estimates.
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Equities headed toward their best week in 2024 after Microsoft Corp. and Google’s parent Alphabet Inc. sent a clear message to investors: Our spending on artificial intelligence and cloud computing is paying off. That came as a positive signal for many traders wondering whether the main engine of the bull market would be able to live up to the high bar set for the industry.
The latest results from large technology companies have reinforced the group’s strong fundamentals, helping offset worries about the macroeconomic backdrop, according to Solita Marcelli at UBS Global Wealth Management.
“With tech fundamentals staying robust, in particular from big tech in the first quarter, we continue to highlight the recent correction has provided interesting entry points for tech and AI-related stocks,” Marcelli said.
The S&P 500 hit 5,100, with Microsoft Corp. and Google’s parent Alphabet Inc. leading a rally in megacaps. The yield on 10-year Treasuries declined three basis points to 4.68%. The yen extended its decline to 157 per dollar, heightening speculation authorities may intervene to stop the decline.
To Clark Bellin at Bellwether Wealth, Friday’s PCE print keeps rate cuts on the table for 2024, but more likely towards the end of the year, which will allow the Fed to analyze a few more inflation reports.
“We believe the stock market can power through these elevated interest rates, as earnings are still fairly strong and companies are figuring out how to still thrive in this high interest rate environment,” he noted. “While investors would welcome lower interest rates, the market can continue to climb even if we see no rate cuts this year.”
Bellin says investors should continue to be on the lookout for opportunities in the market and consider taking advantage of the recent pullback, where “many quality stocks went on sale.”
“Every new inflation print has elevated importance, and the market was in need of an ‘in-line’ print to confirm that the Fed wasn’t starting to lose this battle,” said John Kerschner at Janus Henderson Investors. “Although inflation is still too high for the Fed’s comfort, if progress does continue, it still may be reasonable to assume one, maybe two, cuts in 2024.”
The US equity market will continue to rely on a handful of megacaps stocks for direction until an uptick in real interest rates ignites recession fears, according to Bank of America Corp. strategists led by Michael Hartnett.
That concentration will remain intact until real 10-year yields — rates adjusted to reflect the true cost of funds — rise to around 3%, “or higher yields combine with higher credit spreads to threaten recession,” they wrote.
Elevated bond yields adjusted for inflation, seen as a proxy for tight financial conditions, are a common way for stock-market bubbles to burst.
Corporate Highlights:
Microsoft Corp. and Google’s parent Alphabet Inc. sent a clear message to investors on Thursday: Our spending on artificial intelligence and cloud computing is paying off.
Intel Corp., the biggest maker of personal computer processors, gave a lackluster forecast for the current period, indicating that it’s still struggling to return to the top tier of the chip industry.
Snap Inc. offered positive signs that its efforts to revamp its digital advertising business are gaining popularity with marketers — boosting revenue and providing stronger competition with powerhouses Google and Meta Platforms Inc.
Exxon Mobil Corp. and Chevron Corp. declined after disappointing first-quarter performances.
AbbVie Inc. lifted its full-year profit guidance as newer anti-inflammatory treatments like Rinvoq and Skyrizi take over for Humira, the blockbuster arthritis drug that…
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