Stocks surged on Friday, led by big tech companies like Meta and Amazon, which reported strong earnings after the bell on Thursday. The market shrugged off a blowout January jobs report that showed the economy added a staggering 517,000 jobs last month, exceeding economists’ estimates.
The S&P 500 and Nasdaq closed at all-time highs, while the Dow Jones Industrial Average ended just shy of its record.
Big Tech Earnings Provide Catalyst
Earnings from Meta Platforms and Amazon propelled markets higher early Friday morning after both companies crushed expectations.
Meta stock skyrocketed over 20% in early trading after the Facebook parent said sales rose 16% last quarter and users grew. The company announced a $40 billion increase to its stock buyback program as well.
Meanwhile, Amazon shares jumped 12% as the e-commerce giant swung to a profit in the fourth quarter after losing money for the first time in seven years last quarter. Amazon Web Services, its lucrative cloud business, saw sales climb 20%.
Other mega-cap tech firms like Apple, Alphabet and Microsoft are slated to report earnings next week, potentially providing more fuel for the ongoing rally.
“Big tech companies have kickstarted the earnings season with strong reports that suggest their businesses held up well despite inflation and other economic concerns weighing on consumers,” said Edward Smith, senior analyst at RBC Capital Markets.
Labor Market Defies Expectations
The blockbuster January employment report indicated the U.S. economy remains surprisingly resilient despite high inflation and rising interest rates.
Nonfarm payrolls spiked by 517,000 last month, almost triple what economists were anticipating. The unemployment rate fell to 3.4%, tying a 53-year low.
“The strength of the labor market reveals an economy that refuses to bend or break despite restrictive monetary policy that’s intended to engineer a slowdown,” said Quincy Krosby, chief global strategist at LPL Financial.
Average hourly earnings also rose more than expected, climbing 0.3% from the prior month and 4.4% from last year. The data eases fears that wage growth is slowing dramatically.
Markets Shrug Off Hawkish Fed Implications
Typically strong economic data would be viewed as a negative for stocks since it gives the Federal Reserve ammunition to stick to an aggressive path of interest rate hikes.
However, investors shook off the implications on Friday amid optimism over earnings and signs of cooling inflationary pressure.
“The market seems laser focused on earnings season and the possibility we may have seen ‘peak hawkishness’ from the Fed,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
Futures traders decreased the odds of a half-point rate hike at the Fed’s upcoming March meeting to just 25% after the jobs report. Chatter of rate cuts later this year is also growing.
Outlook Going Forward
With one-third of S&P 500 companies having reported, earnings growth is projected to be 2.9% for the fourth quarter, a stark improvement from estimates for a year-over-year decline ahead of the start of reporting season.
Markets are betting corporate America will avoid a severe downturn as the earnings outlook continues getting less bad.
Next week’s inflation report will be pivotal as investors look for signs that aggressive Fed policy is working to tame scorching-hot consumer prices.
If prices are indeed moderating, it would ease pressure on the central bank and reinforce the possibility of rate cuts late in 2024 to stave off recession.
Meanwhile, big tech giants reporting next week like Apple, Google-parent Alphabet and Amazon will remain in focus as key drivers of market sentiment.
Continued upside earnings surprises would affirm markets can grind higher even in a restrictive policy environment.
On the flip side, major disappointments next week could upend the recent rally, especially with stocks hovering around record levels.
|Stock skyrocketed 20%+
|Earnings crushed expectations, user growth accelerates
|Shares jumped 12%
|Returned to profitability last quarter after rare loss, AWS growth robust
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