Rosalind Evans
Wall Street is seeing an upswing this Thursday due to robust profit results from significant corporations and ongoing evidence of the economy’s resilience against recession forecasts.
By morning trading, the S&P 500 had ascended by 0.6% following its peak in approximately 16 months. Concurrently, the Dow Jones Industrial Average rose by 72 points, or 0.2%, to 35,592 as of 10:30 a.m. Eastern Time, heading for a 14-day winning streak. The Nasdaq composite notably outpaced the market with a 0.9% rise, fueled by Meta Platforms’ impressive profit announcement.
Meta, the parent company of Instagram, WhatsApp, and Facebook, exceeded analysts’ earnings forecasts as it garnered more active users, leading to a 6.9% increase in its stock. Owing to its substantial size, Meta is a significant player on Wall Street.
The Dow was also supported by McDonald’s, whose profits for the spring quarter surpassed analysts’ projections. Boosted by global sales growth, its shares appreciated by 1.9%.
Treasury yields in the bond market also increased following numerous reports indicating a stronger-than-expected economy.
A specific estimate suggested that the economy’s overall growth rate accelerated during spring, surpassing economists’ slowdown predictions. It also inferred that inflation from April to June was lower than anticipated.
Concurrently, another report indicated a decrease in the number of jobless benefits applications last week, underscoring the robustness of the job market. Yet another report noted that orders for durable goods rose more than predicted in the previous month.
These promising data points kept Wall Street in high spirits, boosting confidence that the economy can persistently sidestep recession forecasts, notwithstanding significantly increased interest rates.
The Federal Reserve had raised its federal funds rate on Wednesday, the highest in over two decades, to curb inflation. This rise in interest rates, from almost zero to its current level, has sparked a long-term investor watch for a potential recession.
Nevertheless, Federal Reserve Chairman Jerome Powell stated that incoming data on inflation and the economy would determine future rate hikes. This stance has ignited traders’ hope that Wednesday’s rate increase may be the cycle’s last.
Investors have perceived high-interest rates as detrimental to technology and other high-growth stocks, explaining why Big Tech stocks, led by Meta’s strong profit report, were driving the market on Thursday.
Expectations for an end to rate increases have boosted confidence in the Fed’s potential to facilitate a “soft landing” for the economy. This scenario implies that high inflation could be controlled to meet the Fed’s targets without causing a painful recession.
These expectations have positively impacted the stock market this year. However, skeptics argue that the market could have accelerated too quickly. Although inflation has dipped from its peak last summer, it remains high, and the Fed’s most challenging task might lie ahead. They suggest a recession might still be inevitable.
Yet, Thursday’s market was dominated by a mood of optimism.
European stocks also rose following the European Central Bank’s decision to raise interest rates. The French CAC 40 and Germany’s DAX surged by 2.1% and 1.6%, respectively.
Asian markets, led by Hong Kong’s Hang Seng with a 1.4% rally, were also mainly higher.
In the bond market, the yield on the 10-year Treasury advanced to 3.94% from 3.87% late Wednesday, a metric that influences rates for mortgages and other vital loans.
The two-year Treasury yield, more reactive to Fed expectations, advanced to 4.91% from 4.85%.
Despite rising interest rates and inflation, the markets demonstrate resilience and adaptability. The future will reveal whether the current optimism can be sustained and if the Federal Reserve will be successful in its quest to attain a “soft landing” for the economy. Yet, for the time being, the vitality of big companies, steady economic growth, and the job market’s resilience are fueling a positive outlook, leading to a notable surge in Wall Street.
