US equities rebounded on Friday as Alphabet (GOOG, GOOGL) and Microsoft (MSFT) profits renewed optimism for a long-term Big Tech rise, despite a reading on the Federal Reserve’s favoured inflation measure indicating that price pressures remain sticky.
The S&P 500 (^GSPC) jumped 1%, while the tech-heavy Nasdaq Composite (^IXIC) increased by 2%. The Dow Jones Industrial Average (DJI), which includes fewer tech firms, gained by 0.4%, or 150 points.
Alphabet and Microsoft’s gains boosted stocks by around 10% and 2%, respectively. The “Magnificent Seven” duo’s outstanding performance demonstrated how rising demand for AI may improve cloud income, implying that both firms stood to gain from the surge. Alphabet’s market capitalization has topped $2 trillion, entering an elite group.
The result boosted confidence that profits from the Magnificent Seven companies may propel the wider market out of its slump. Those expectations were dashed earlier this week when Meta (META) issued a poor outlook.
At the same time, the market received the most recent data of the Fed’s preferred inflation indicator, the personal consumption expenditures price index, for March. The “core” metric in that study, which excludes the cost of food and energy, increased 2.8% over last year, exceeding expectations of 2.7% but remaining constant from the previous year’s gain.
The report comes as Wall Street has dramatically reduced its expectations for Fed rate cuts this year. Already, since the beginning of the year, traders have reduced their bets from seven to one.
After another strong inflation data reinforced the notion that any near-term interest rate reduction are unlikely, investors will be eyeing the Federal Reserve’s policy meeting next week for clues as to what will happen next.
Officials have been dampening prospects for a rate drop for months, as inflation readings remain stubbornly high. Fed Chair Powell is anticipated to address these issues at Wednesday’s news conference, providing insight into a policy of keeping rates higher for longer, despite calls from some critics of the central bank to lower rates.
Economic developments will be only one part of the tale in the coming days. Apple (AAPL) and Amazon (AMZN) are set to report, following excellent showings from Microsoft (MSFT) and Google parent Alphabet (GOOG, GOOGL), as well as a frosty reaction for Meta’a’s big AI expenditure.
A number of non-tech business behemoths, such as McDonald’s (MCD), Coca-Cola (K0), and Mastercard (MA), are also due to report profits.
Alphabet (GOOG, GOOGL), Google’s parent company, is poised to join an elite group of digital corporations valued at more than $2 trillion.
Shares climbed more than 9% on Friday after a strong quarter that exceeded expectations on both the top and bottom lines, ushering in a new dividend programme and $70 billion in buybacks.
The strong report boosted the company’s market capitalization by about $200 million, propelling it into the elite tier alongside Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA).
While Alphabet’s drive into generative AI has been hampered by setbacks and a sense of playing catch-up with Microsoft, business officials emphasised that its investments in new models and technology integration position the firm at the vanguard of the AI age.
The quarter’s capital expenditures were $12 billion, with the majority of it going into servers and data centres. CFO Ruth Porat stated on the results call that the coming quarters will see similar levels of spending, showing the company’s confidence in its AI initiatives.
Unlike Alphabet (GOOG, GOOGL) and Microsoft (MSFT), who have been praised on Wall Street for delving deeply into AI development, Meta (META) elicited a different reaction following its most recent earnings report.
CEO Mark Zuckerberg used a previous Facebook era, when the social network switched to mobile phones, to remind investors that you had to spend money to create money. He was correct to remind investors of the notion of investing, since after seeing the overwhelming cost of an AI spending frenzy, Wall Street threw Meta shares down a lift shaft.
While the News Feed, Reels, and Stories reinforced the company’s expand first, profit later strategy, investors are still sceptical of Zuckerberg’s AI gamble.
The negative reaction to Meta’s earnings created a mirror picture of Tesla’s (TSLA) post-report rally. As Elon Musk’s marketing alchemy demonstrated earlier this week, a combination of creative narrative and market appeasement may mean more than the stats indicate. Whereas investors overlooked Tesla’s deteriorating financials and accepted Musk’s next dream, they dismissed Meta’s strong performance and stopped listening.
Take a look at the most recent quarterly results from three homebuilders: D.R. Horton (DHI), PulteGroup (PHM), and M/I Homes (MHO).
McCanless noted in an email to Yahoo Finance that Pulte has the least (39%) concentration on first-time buyers, and their order increase was significantly higher than projected. DHI and MHO each focus 50% to 60% on first-time buyers. Both builders exceeded our order estimate, albeit by far lesser margins.
Over the last year, the Federal Reserve has taken a cautious approach to interest rate policy, resulting in an atmosphere of continual data monitoring. However, with Friday’s PCE figure indicating that March prices rose more than Wall Street predicted, regulators are likely to “wait and see” for yet another set of economic statistics.
“When it comes to inflation, the Fed can’t catch a break,” analysts at Bank of America Global Research said in a report Friday. “At next week’s May FOMC meeting, we think the Fed will take a wait-and-see approach to cuts while giving policy more time to work.”
The core PCE index, which excludes the cost of food and energy and is widely studied by the Federal Reserve, increased 2.8% over the previous year in March. That was more than expected at 2.7% and remained consistent with the yearly gain recorded in February.
The latest in a series of hotter-than-expected readings has dampened hopes for an impending rate decrease. Fed Chair Jerome Powell has stated that the central bank would not decrease interest rates unless policymakers are sure that inflation is declining.
“We’re still optimistic about the market, but we don’t think rate cuts are necessary for the bull market to continue,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, in a note on Friday. “Instead, ongoing economic progress and rise in corporate earnings, which we are now witnessing from the market’s top businesses, will drive stock prices to new highs.
However, the market reaction to Rubrik is a side note to the narrative of co-founder and CEO Bipul Sinha, which he told with me on the NYSE.
Sinha established Rubrik in 2014, working at coffee shops near Google and YouTube headquarters to recruit top developer talent.
He does not disguise his humble beginnings in India, which has spurred his entrepreneurial success.
“Maximal thinking is how I lifted myself out of poverty,” Sinha stated in a letter included in the company’s IPO prospectus.