- Stocks Keep Rally Going as Big-Tech Earnings Loom
- UK bonds posted some of their biggest gains on record
- A gauge of the dollar strength rose while the yen dropped
US stocks rallied for a second straight session as investors geared up for some of the world’s biggest companies to report earnings this week. Traders also mulled whether the Federal Reserve will slow its pace of interest-rate hikes after assessing weak economic data that released Monday.
More than 80% of stocks in the S&P 500 index closed in green on Monday, buoyed by gains in technology and health-care companies. The Nasdaq 100 also rose more than 1%. Among the megacap companies slated to report earnings this week are Alphabet Inc., Microsoft Corp. and Meta Platforms Inc.
Earnings remain in focus in the US, with investors still on edge over whether companies that are among the key profit-growth engines for the S&P 500 can deliver profits with inflation crimping margins. Of the almost 20% of companies that have reported so far, roughly 58% posted positive surprises in both revenue and earnings per share, according to data compiled by Bloomberg. As the Fed attempts to stomp out inflation, latest earnings displaying resilience and showing few signs of recession may be making some investors uneasy on equities.
“Over the short-term, we think we can get some relief. The fact that earnings season has also been relatively strong is also helpful,” Andrew Sheets, Morgan Stanley’s chief cross-asset strategist, said on Bloomberg Television. “But the big picture — and I don’t think this changes — is that we still view this as a bear market rally rather than the start of a larger new bull market.”
Fed policy is also still a key focus for investors. Data on Monday indicated that Fed tightening is starting to hit the economy, with Purchasing Managers’ Index indicators showing contraction in the services and manufacturing sectors. Reports that the Fed may soon start reducing the size of its rate hikes had pushed stocks higher by more than 2% on Friday. San Francisco Fed President Mary Daly’s comments on Friday also added to the tentative optimism. But some investors are still cautious in their expectations that the central bank is moderating its rhetoric.
“We are still agnostic as to whether the Fed really is going to pivot or be at the peak of its hawkish cycle,” said Lisa Erickson, senior vice president and head of public markets group at US Bank Wealth Management. “If you look at the underlying data, inflation remains sticky, particularly in services ex-housing, which can often be more persistent. So given the Fed’s dependence on the data, we’re not clear exactly again, when the Fed may truly begin to slow down.”
The central bank needs to maintain a balance between addressing inflation and reacting appropriately to any signs of slowdown in inflation, Erickson said.