(Bloomberg) — The stock market is wrapping up a chaotic week with solid earnings from megacaps bringing solace to traders worried about the many cross-currents rattling economies around the globe.
After a horrific first half, the S&P 500 snapped back and is heading toward its best month since November 2020.
Big tech led gains on Friday, with Amazon.com Inc. and Apple Inc. set to add nearly $170 billion in market value. Higher revenues from the pair of iconic powerhouses countered fears about a slowdown in profits at time when the industry is increasingly rethinking its staffing needs.
Despite worrisome signals from economic proxies like Walmart Inc.
and United Parcel Service Inc., the earnings season as a whole has turned out to be brighter than expected — with 75% of the S&P 500 firms reporting second-quarter results beating analyst estimates.
That’s fueling speculation that Corporate America will weather the perfect storm of hot inflation, jumbo-sized rate hikes and dwindling growth.
In fact, Bloomberg Intelligence’s fair-value model suggests a modest recession may have been priced in following this year’s stock-market selloff.
That means a price recovery could emerge with an earnings trough in the second half of 2022
“The fact that earnings are not as bad as feared is a very constructive thing for the markets,” said Anastasia Amoroso, chief investment strategist at iCapital.
“The fact that we have priced in a whole lot of slowdown already, that too has just de-risked the landscape. And so I think what can happen for the next couple of weeks is that the technical momentum really keeps moving stocks higher while we wait for the next Fed move or the next inflation print.”
Two key US price gauges posted larger-than-forecast increases, with the personal consumption expenditures index — which forms the basis for the Federal Reserve’s inflation target — climbing at the fastest pace since 2005.
Another report showed consumers’ long-term inflation expectations remained elevated. Swaps showed traders increased bets on a 75-basis-point hike in September, though they continued to wager that a 50-basis-point hike was the most likely outcome.
Fed Bank of Atlanta President Raphael Bostic noted the US economy was “a ways” from entering a recession and officials have further to go in raising rates to get prices under control.
Fed Governor Christopher Waller pushed back against economists Olivier Blanchard and Lawrence Summers, who said the central bank’s assertion that it can cool off labor demand without much impact on the unemployment rate “flies in the face” of evidence.
Despite the big rebound in stocks this month, several market watchers are still skeptical about a sustained rally due to the many economic challenges and the fact that the market hasn’t gotten cheap enough to call it a bottom.
“This is a rally within a bear market rather than the start of a new bull market,” said David Donabedian, chief investment officer of CIBC Private Wealth US.
“We would expect a lower P/E ratio if we were at the bottom of the market. While the equity market has partially recovered, we expect it will retest the lows we saw in June.”
Donabedian says optimism about the Fed potentially wrapping up its tightening cycle earlier than expected is “more hope than reality”.
He sees further rate hikes and says there’s still a lot of work ahead to bring down inflation while adding that “a slowing job market is on the way.”
In other corporate news, Intel Corp., the biggest maker of computer processors, slashed forecasts for the year.
Roku Inc., the maker of streaming-TV devices, said advertisers are pulling back on spending due to economic concerns. Exxon Mobil Corp. and Chevron Corp. posted their highest-ever profits, reaping the rewards from surging commodity prices.
Procter & Gamble Co.’s forecasts growth lagged estimates.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 1.3% as of 2:51 p.m. New York time
- The Nasdaq 100 rose 1.7%
- The Dow Jones Industrial Average rose 0.9%
- The MSCI World index rose 1.1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.2% to $1.0213
- The British pound was little changed at $1.2168
- The Japanese yen rose 0.7% to 133.37 per dollar
Bonds
- The yield on 10-year Treasuries declined five basis points to 2.63%
- Germany’s 10-year yield declined one basis point to 0.82%
- Britain’s 10-year yield was little changed at 1.86%
Commodities
- West Texas Intermediate crude rose 2.6% to $98.89 a barrel
- Gold futures rose 0.7% to $1,781.80 an ounce
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