Stocks around the world climbed on Friday after strong earnings reports from some of the largest U.S. technology companies. Investor sentiment was bolstered by robust results that beat expectations, easing concerns over the impact of rising interest rates and global economic headwinds.
Mega Caps Lead Rally on Wall Street
Amazon and Google’s parent company Alphabet both reported better than expected earnings Thursday after the market close, sending shares sharply higher in after-hours trading. The news carried over to Friday’s session, with the tech-heavy Nasdaq jumping over 3% while the S&P 500 rose 1.9%.
All 11 S&P 500 sectors traded higher, led by information technology and communication services. Amazon surged nearly 8% while Alphabet climbed over 4%. Apple and Microsoft also notched solid gains.
“U.S. stocks are getting a lift from strong earnings, particularly in big tech names like Google, Amazon and Apple,” said Edward Moya, senior market analyst at Oanda.
The upbeat earnings reports helped overshadow ongoing concerns over the Federal Reserve’sinterest rate hiking path. Many investors feared higher rates would severely impact future earnings for growth stocks.
Solid Earnings Boost Asian Shares
Markets across Asia followed Wall Street higher on Friday, with Japan’s Nikkei adding 1.1% and Hong Kong’s Hang Seng index climbing 2.4%. South Korea’s Kospi rose 1.6% while mainland Chinese shares traded mixed.
“A tech-fuelled rally overnight on Wall Street, led by strong earnings from companies including Apple and Facebook parent Meta Platforms, cheered Asian stocks even as investors prepared themselves for the outcome of what very likely will be another jumbo interest rate hike by the Federal Reserve next week,” said Eunice Yoon, a correspondent for Inside Asia.
Analysts pointed to the U.S. jobs report due later Friday as another potential market catalyst. The nonfarm payrolls data could provide insights into the health of the labor market. A robust number may reinforce expectations of further Fed tightening.
ECB Hikes Rates Again Amid Stubborn Inflation
The European Central Bank raised interest rates by 50 basis points on Thursday, marking its third consecutive hike as euro zone inflation remains near record highs. Consumer prices jumped 8.5% in the year through January, more than four times the bank’s target rate.
ECB President Christine Lagarde reaffirmed intentions to continue withdrawing monetary stimulus, though she left the door open to potentially slowing the pace of hikes. Markets are pricing in at least two more half-point increases at upcoming meetings.
“Another 50 basis point rate hike from the European Central Bank to battle inflation might have been baked into market expectations, but traders are clearly breathing a sigh of relief that the central bank didn’t go harder with a 75 basis point move,” said Craig Erlam, a senior market analyst at OANDA.
The euro climbed against the U.S. dollar following the central bank announcement while bond yields on the continent ticked higher. Most European indexes closed lower Thursday but gained on Friday.
All Eyes Turn to U.S. Jobs Data
The January nonfarm payrolls report will garner significant attention Friday as investors look for clues regarding labor market strength and implications for future rate decisions. Economists predict the U.S. economy added 185,000 jobs last month while the unemployment rate held steady at 3.5%.
Average hourly earnings are projected to rise 0.3% over the previous month. Accelerating wage growth may raise concerns over a wage-price spiral that could force the Fed’s hand to keep hiking aggressively into 2024. A weakening job market could assuage those fears.
“A lot hangs on whether wages growth starts to slow,” said Callie Cox, U.S. investment analyst at eToro. “If we don’t see signs of slack soon, the Fed’s path to a soft landing gets even trickier.”
Outlook Remains Uncertain But Hope Emerges
While optimism returned to markets Friday, significant uncertainties remain regarding inflation trends, consumer demand, geopolitical tensions, and central bank policies across the globe.
Many risks still confront investors, including the potential for a profits recession if earnings falter. However, resilient results from mega-cap tech giants helped restore belief that certain high quality secular growth stories can power through an economic slowdown.
Ongoing volatility is widely expected over the coming months. Cautious optimism exists that a soft landing can be achieved, though much depends on the path of inflation and the Fed’s reaction function. If price pressures continue easing, markets may find firmer footing.
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What Lies Ahead
- Further analysis of Friday’s U.S. jobs report and potential signals regarding Fed policy
- Additional major tech earnings next week, including Uber, Walt Disney, and Twitter
- Ongoing scrutiny of inflation data from U.S., China, Europe and elsewhere
- Geopolitical developments around China-Taiwan relations, Ukraine war
- Possible recession signals in forward-looking economic indicators
- Fed and ECB communication regarding rate hike paths and balance sheet reduction
The road ahead promises more uncertainty and volatility. However, markets have shown resilience in the face of past crises. Maintaining proper risk management and a long-term perspective will aid investors in navigating the turbulence.
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