Meta, other tech stocks send markets soaring
Wall Street’s bang to start the year got even bigger Thursday as tech stocks and a surge for Facebook parent Meta Platforms led the market higher.
The S&P 500 rallied 1.5%, a day after hitting its best 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. The Dow slipped 0.1%.
Meta helped lead the way Thursday with a 23.3% leap after it reported after the market close Wednesday better revenue for the latest quarter than analysts expected and said the company expects to spend less this year than previously forecast. While its latest profit fell short of expectations, Meta also announced a program to buy back $40 billion of its stock.
Stocks had already been on the upswing through the start of the year on hopes the Federal Reserve may be set to pause soon on its interest rate increases, which help stamp out inflation but also hurt the economy and investment prices.
On Wednesday, stocks and bonds took off after Fed Chair Jerome 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 in rate increases may indeed be imminent, and investors even raised bets for cuts to 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 more rate increases will likely 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 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, where inflation can drop 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 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 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. European stocks rallied, with the German DAX returning 2.2%. The FTSE 100 in London was up 0.8%.
On Wall Street, big jumps for several tech stocks helped lift the market ahead of their earnings reports, which came after trading closed for the day.
Amazon.com Inc. and Google parent Alphabet Inc. each jumped Thursday more than 7%, while Apple Inc. rose 3.7%.
Each tumbled back in afterhours trading, though, after releasing 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 today’s U.S. jobs report for January, 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.
Big tech companies have announced high-profile layoffs recently, but a report on Thursday suggested job cuts are not that widespread. Fewer workers applied for unemployment benefits than expected last week, and the number dropped to its lowest level since April.
Treasury yields were holding steady Thursday after falling in earlier days, an indication of expectations for an easier Fed. The yield on the 10-year Treasury, which helps set rates for mortgages and other important 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.