U.S. stocks pared their April losses on Friday, with the S&P 500 booking its biggest weekly gain since November as Big Tech stocks rallied.
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The S&P 500 advanced sharply Friday afternoon as investors shrugged off fresh evidence of sticky inflation and cheered earnings from Microsoft Corp. and Google parent Alphabet Inc.
“Today’s reaction in the market is principally because of the stronger earnings reports from Microsoft and Alphabet,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial, in a phone interview Friday. Investors were breathing “a sigh of relief” that “the AI narrative and outlook for Big Tech earnings didn’t change after we saw Alphabet and Microsoft report” their results following the market’s close on Thursday.
Shares of Alphabet GOOGL soared 10.2% on Friday, with the megacap company’s market value closing above $2 trillion for the first time, according to Dow Jones Market Data. Shares of Microsoft MSFT, Nvidia Corp. NVDA and Amazon.com Inc. AMZN also rallied Friday.
Meanwhile, a fresh reading Friday from the personal-consumption expenditures price index showed that U.S. inflation rose in March in line with Wall Street’s expectations. PCE data indicated that core inflation, which excludes energy and food prices, rose 0.3% last month for an annual pace of 2.8% — the same year-over-year rate seen in February.
“Inflation is sticky,” said Saglimbene, but “you’re seeing stocks largely discount the PCE data.”
The S&P 500 SPX rose a sharp 1% Friday, while the technology-heavy Nasdaq Composite COMP jumped 2% and the Dow Jones Industrial Average DJIA climbed 0.4%. For the week, the S&P 500 climbed 2.7%, logging its biggest weekly gain since early November to reduce its April loss to 2.9%.
Investors this year have been pushing out their expectations for when the Federal Reserve may begin lowering its benchmark rate, which it has kept elevated to battle inflation.
“If the market believes the Fed’s next move is a cut, then I think stock prices will be ok,” said Saglimbene. “Whether it’s one or two doesn’t really make a difference,” he said, but added that a surprise hike to stomp out inflation could “quickly” trigger a correction in U.S. equities.
The Fed will announce its next decision on interest rates after its two-day policy meeting concludes next week on May 1.
Traders in the federal-funds-futures market anticipate the central bank will cut rates this year, potentially starting in September, according to the CME FedWatch Tool on Friday.
Investors are also keeping an eye on U.S. growth.
The gross-domestic-product report released on Thursday “had people on edge” as it showed that during the first quarter economic growth slowed while inflation picked up, according to Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.
That sparked worries over the risk of a “stagflationary” environment, he said by phone Friday.
While Samana is expecting potentially two rate cuts from the Fed this year, he said, “if there’s a risk, it’s that they don’t cut at all” as inflation appears sticky.
“It doesn’t seem like it’s going away any time soon,” Samana said. “You’ve got a very resilient consumer,” he said, citing the personal spending data in Friday’s PCE inflation report. Against the backdrop of a still strong labor market, he said that consumer spending adds to inflationary pressures.
“It’s problematic for interest-rate cuts and the Fed,” Samana said.
