Rosalind Evans
As of Friday, Wall Street appears poised for another successful week as the stock market steadies following a drop the previous day.
Midday trading saw a 0.3% increase in the S&P 500, setting it on track for its eighth triumphant week out of the last ten. The Dow Jones Industrial Average rose by 100 points (0.3%), reaching 35,325 at 11:50 a.m. Eastern Time, and the Nasdaq composite grew by 0.2% after experiencing its most severe drop in over four months on the previous day.
Roper Technologies stood out with a 3.5% surge in the S&P 500 following its spring profit and revenue exceeding analysts’ projections. The tech giant, aiming to control niche tech markets, also uplifted its financial expectations for the entire year.
The earnings report season is accelerating, with most companies outperforming expectations, as is usually the pattern.
Contrarily, American Express faced a 3.6% dip despite reporting better-than-anticipated spring profit; its revenue failed to meet forecasts. Comerica, after initially showing gains, reported a 3.1% loss. While its spring profit and revenue surpassed expectations, the bank saw a drop in average deposit levels among its clients. However, it confirmed these levels stabilized in the quarter’s latter half. Deposit scrutiny has heightened since several banks’ failure in March due to abrupt cash withdrawals by customers.
Despite recession predictions, the stock market, with a resilient economy, has been robust this year. It has been managing higher interest rates intended to curb inflation, fostering hopes that it might withstand the Federal Reserve’s rate-hike campaign.
The Federal Reserve is anticipated to increase its federal funds rate to its peak since Wednesday, 2001. Yet, there’s hope this will be the final hike for this cycle, given the inflation cooldown since the previous summer. The federal funds rate commenced last year virtually at zero.
Indeed, the over 18% leap for the S&P 500 this year has critics arguing that the rally has accelerated too quickly. The recession risk persists as inflation and interest rates stay high.
Economists at Deutsche Bank suggest that when Federal Reserve Chair Jerome Powell speaks on Wednesday after the central bank’s rate decision, he is “likely to emphasize that further evidence is needed to have confidence inflation will be tamed.”
A fraction of stocks, particularly those capitalizing on Wall Street’s AI technology craze, have driven much of this year’s market gains. Nvidia, for instance, has seen more than a threefold increase.
Such concentrated gains have led Nasdaq to rebalance its Nasdaq 100 index before trading starts on Monday to mitigate the influence of certain stocks on the overall index.
The “Magnificent Seven”—Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla—have mainly powered Wall Street’s gains. The combined stock prices of these companies are 44 times their earnings per share over the last 12 months, notes Savita Subramanian, equity strategist at Bank of America. This is a high level compared to historical standards, although other S&P 500 stocks trade at a more reasonable 17 times earnings. The stock market’s gains have started to diversify recently, and Subramanian expects this trend to continue in a BofA Global Research report.
Treasury yields exhibited mixed performance in the bond market. The 10-year Treasury yield fell from 3.86% to 3.82%, affecting rates for mortgages and other significant loans. Meanwhile, the two-year Treasury yield, more sensitive to Fed expectations, increased marginally from 4.84% to 4.87%.
In international markets, European and Asian stocks exhibited a mixed trend.
Taiwan’s Taiex fell by 0.8% as TSMC, the largest global manufacturer of computer chips, predicted a 10% sales drop this year due to weakening demand. The company also confirmed that it would not meet its 2024 target to commence production at a new factory in Arizona.
Wall Street continues to show resilience despite the economic challenges of high-interest rates and inflation. The success of tech giants dubbed the “Magnificent Seven” has played a significant role in this trend, though experts predict a diversification of gains moving forward. The performance of TSMC and the upcoming Federal Reserve decisions are also critical factors to watch in the coming weeks.
