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WEEKLY SUMMARY: Mega-cap tech stocks melt-up despite hawkish Fed
US equity performance was mixed over the week as large-caps indices moved to intraday highs while small-caps and an equally weighted version of the S&P 500 Index recorded a modest loss. It was the busiest week of the Q4 earnings reporting season, with several releases from heavily weighted tech giants driving investors’ sentiment. Meta was the biggest winner of the week, up 20% on Friday. Meanwhile, Regional banks suffered their worst week since May 2023. On Wednesday, the Fed left short-term interest rates unchanged, as it was widely anticipated, but Fed Chair Jerome Powell stated that he didn’t think it’s likely that the Fed will cut rates in March. As a result, futures markets are now pricing in only a 20.5% chance of a rate cut in March, down from 47.7% the week before. Chances of a rate cut seemed to diminish further on Friday, after the Labor Department reported that employers had added 353,000 nonfarm jobs in January, nearly double consensus estimates, while November’s and December’s gains were also revised higher. The yield on the benchmark 10-year U.S. Treasury note rose in the wake of Friday’s jobs report but still ended lower for the week. Outside the US, the pan-European STOXX Europe 600 Index ended the week roughly flat. Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 1.1%. Stocks in China retreated as downbeat economic data and property sector headlines fueled investors’ pessimism about the growth outlook. Crude Oil tumbled.
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US equities managed to snap a string of three weekly losses. Earnings took center stage with the spotlight on the Magnificent 7 stocks. Despite the high bar, companies have so far been able to beat expectations, helping the S&P 500 recover half of its April losses. The Nasdaq outperformed, up 4% on the week (its best week since the start of Nov 2023), helped in part by strength in Apple and a late rebound in chipmaker NVIDIA. Shares in Google parent Alphabet also surged in the week following its announcement of better-than-expected Q1 earnings along with the company’s first dividend payment. The Dow was the laggard. On the Macro side, the US economy expanded at an annualized rate of 1.6% in Q1, well below consensus estimates of around 2.5% and the slowest pace of growth in nearly two years.