Topline
Stocks rose broadly on Friday following a massive rally by tech titans as investors once again clung to hopes that the Federal Reserve’s rate hike campaign would end soon, although economist says ‘unprecedented’ macro conditions mean rate optimists shouldn’t be sure the central bank will back down anytime soon.
All three major stock indexes posted consecutive days of gains for the first time in a month.
Highlights
Respective gains of 1.5% and 1.9% by the Nasdaq, the S&P 500 and the technology-heavy Nasdaq marked the best performance of each index since February 7, while the Dow Jones Industrial Average rose by 1%, or 340 points.
It was the first time since early February that the three major indexes recorded back-to-back winning days as the market applauded a variety of factors that eased pressure on equities, including falling bond yields and support from the Atlanta Fed President Raphael Bostic for an upcoming pause on rate hikes. .
Friday’s rally was fueled by gains from the nation’s biggest tech companies, with Microsoft (1.7%), Tesla (4.8%) and Facebook parent company Meta (6.5%), Amazon ( 2.9%), Apple (3.3%), Netflix (1.5%) and Google parent Alphabet (1.7%) each in the green as investors retreated into rate-sensitive stocks.
These seven companies added a market capitalization of $214 billion on Friday.
Contra
“Right now, it’s very clear that the Fed needs to keep going higher,” said Brian Rose, senior economist at UBS’s Chief Investment Office. Forbes in a phone interview, adding that he would not rule out a 50 basis point hike in the federal funds rate at the central bank meeting later this month. The “unprecedented momentum” in the US economy emerging from the depths of the pandemic calls into question the US’ return to the 14-year status quo of low interest rates, according to Rose. The Fed “has made it clear that it is ready to trigger a recession” to prevent “inflation from taking root,” Rose said.
Key context
Over the past 12 months, interest rates have risen to their highest levels since before the Great Recession, as the Fed has aggressively used its main tool to rein in inflation. High rates have contributed to deep equity losses throughout 2022, especially for tech companies, whose stock prices are far more sensitive to the impact of borrowing costs on future earnings than theirs. peers. Personal loans have also become more expensive due to the rise in the federal funds rate, with 30-year mortgage rates hovering around their highest level since 2008 as the housing market slumps.
Surprising fact
Cryptocurrencies cratered on Thursday and Friday as stocks rallied, with bitcoin falling 7% as crypto banking giant Silvergate Capital became the latest industry player to flirt with bankruptcy.
Further reading
Latest crypto meltdown: Bitcoin and Ethereum losses exceed $24 billion as Silvergate unravels (Forbes)
Stocks are below normal in February amid fears of higher interest rates and weak earnings (Forbes)