4:24pm: Inflation expectations may be shifting
The Dow closed Friday up 316 points, 1%, at 32,845, the Nasdaq Composite added 228 points, 1.9%, to 12,391 and the S&P 500 improved 58 points, 1.4%, to end at 4,130.
Friday marked the third-consecutive positive day for the major benchmarks.
“Starting from a position of depressed sentiment and bearish positioning was an asset, but the bigger picture was a subtle shift in inflation and inflation expectations, and thus the market’s expectation for the Fed’s path,” said Ross Mayfield, investment strategy analyst at Baird, according to CNBC. “Of late, corporate earnings resilience has only added to the bull case and likely put a near-term floor under equity markets.”
12.05pm: US stocks surge on tech and energy earnings
The major US indices were in the green midday, as investors reviewed positive earnings reports from tech giants Apple and Amazon, and the oil and gas industry posted record profits.
The Dow Jones Industrials Average was up at 0.34% at 32,642 points, the S&P 500 was up 0.8% at 4,104 and the Nasdaq Composite was up 1% at 12,283.
Joshua Mahony, senior market analyst at IG, noted that oil and gas stocks continue to outperform, as ExxonMobil and Chevron profits soar in the second quarter of 2022.
“At a time where green ethical investing has become a cornerstone of many portfolios, the oil and gas industry has brought huge profits for those willing to remain bullish for this supposedly doomed sector,” Mahony said.
He added: “With recent events in Russia helping drive crude oil back above US$120 in the second quarter, the huge cost-cutting efforts made throughout the dark days of 2020 appear to finally be paying dividends for energy stocks. Record earnings from both Chevron and Exxon Mobil highlight how markets had underestimated just how good things have been for the sector. With 58% of the S&P 500 energy stocks having reported, 80% of the sector have now managed to outperform on earnings, and another 80% beat on revenues.”
Mahony also noted that tech stocks lead the way in the wake of a welcome outperformance from both Amazon and Apple after-hours yesterday.
At midday, the major movers included Chevron up 8% and Amazon.com up 11.7%, but Intel Corp fell by 9% after its earnings.
9.35am: Winning streak continues
US stocks opened higher spurred by a slew of corporate earnings along with the Fed’s latest interest rate hike coming in at 75 basis points per the market expectation.
Just after the open, the Dow Jones Industrial Average had added 24 points at 32,554 points, while the S&P 500 was up 19 points at 4,091 points, and the Nasdaq Composite was up 79 points at 12,242 points.
OANDA senior market analyst Craig Erlam noted that the way equity markets had responded this week to the Fed’s decision, corporate earnings, and an unexpected recession that wasn’t a real recession was a bit strange.
“The non-recession in the US has seemingly fallen into the bad news is good news category - always a good sign when this narrative re-emerges - and investors are overenthusiastically celebrating earnings that are either not as terrible as feared or offer glimmers of hope on the outlook while missing on the top and bottom line,” Erlam said.
“It doesn't exactly scream sustainable recovery and yet something tells me we could be in the midst of a late summer surge in stock markets.”
6.30am: Earnings in focus again
US stocks were expected to open higher on Friday ahead of earnings from the likes of oil majors Chevron and Exxon Mobil.
Share prices have enjoyed a decent run despite news of a surprise drop in US second quarter GDP and a widely expected 75-basis point rate increase this week, with investors seeking out bargains after the tumultuous year for equities so far.
Futures for the Dow Jones Industrial Average were trading 0.2% higher pre-market on Wednesday, while those for the broader S&P 500 index were up 0.7%, and futures for the tech-laden Nasdaq-100 added 1.1%.
“This week has been mainly about the Fed, the US GDP data and US corporate earnings. Investors had a lot of information to digest and overall sentiment has been positive,” said Naeem Aslam chief market analyst at avatrade.com.
While the US economy shrank unexpectedly in the second quarter, any disappointment did not show in price action.
“Speaking from a monetary policy perspective, we are in a scenario where bad news is good news as this means that the Fed will not take aggressive measures towards its monetary policy,” said Aslam. “For instance, yesterday’s GDP number for the US economy were as dire as they could have been but if you look at the stock market, we saw a decent rally.”
Investors are starting to bet that while the US Federal Reserve will continue its path of rate hikes, it will also be mindful of the threat to economic growth.
In data released yesterday, US 2Q gross domestic product (GDP) contracted at an annual rate of 0.9% in 2Q, narrower than the1.6% GDP drop in 1Q but significantly below market expectations for 0.5% growth.
While US rate-setters are expected to raise interest rates further, the pace of hikes is seen slowing amid the threat of a prolonged recession.
After solid earnings news after-hours from tech giants Apple Inc (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:AMZN), the earnings season rolls on today with quarterly reports from some key companies, including majors Chevron and Exxon Mobil. Also releasing results today are Procter & Gamble (NYSE:PG) and Colgate-Palmolive. Which will give an indication of how consumer demand is faring against a backdrop of rising prices and interest rates.
Contact the author at jon.hopkins@proactiveinvestors.com