US stocks advanced on Friday boosted by a week of strong earnings from Big Tech groups even as investors assessed the implications of two stronger-than-expected inflation reports.
The benchmark S&P 500 added 0.6 per cent, led by energy and financial stocks, building on the previous session in which the index clocked its biggest daily increase since January 6. The blue-chip index is on track for back-to-back monthly gains. The tech-heavy Nasdaq Composite index added 0.4 per cent.
Wall Street was buoyed by strong earnings results from Meta, Microsoft and Alphabet this week. And with more than half of companies on the S&P 500 having reported results so far, nearly 80 per cent have reported earnings ahead of expectations, according to data provider FactSet.
Meanwhile, First Republic shares plunged nearly 40 per cent on Friday, continuing their freefall, set off by the bank’s announcement at the start of the week that customers had withdrawn $100bn of deposits during last month’s turmoil and as a plan for the bank’s survival failed to materialises.
Investors also assessed fresh inflation data released Friday that is likely to keep the Federal Reserve on track to deliver a quarter point rate rise next week.
The labour department’s employment cost index, which tracks wages and benefits paid by private and public sector employers, rose 1.2 per cent in the first quarter, while a separate report showed the core personal consumption expenditure price index rose 4.6 per cent year on year in March. Both were ahead of economists’ estimates.
“The Fed is in a tough spot. The economy is cooling, with slower payrolls growth in the past few months, [and] GDP growth of just 1.1% annualised in the first quarter,” said Bill Adams, chief economist at Comerica Bank. “But inflation is still too high, and the components of inflation that the Fed worries will be most persistent — that is, inflation of labour-intensive services — are especially sticky.”
“I was hopeful that we could finally declare victory on this tightening cycle, but I think we have to wait until next month,” Jack Ablin, chief investment officer at Cresset Capital, said.
US government bonds rallied, with the yield on interest rate sensitive two-year Treasuries falling 0.04 percentage points to 4.05 per cent. Yields move inversely to prices.
“We’re looking at the GDP being half of what it was expected to be and the spending being unchanged on the PCE today. I think the market is going along with the idea that a recession is a real possibility,” said Lou Brien, a strategist at DRW Trading.
Meanwhile, European stocks recouped morning losses, when inflation data stirred concerns that eurozone interest rates would have to increase further to stave off price rises.
The pan-European Stoxx 600 closed 0.6 per cent higher while Germany’s Dax added 0.8 per cent. France’s Cac 40, up 13 per cent this year, rose 0.1 per cent as French inflation in April accelerated more than economists had expected, raising pressure on the European Central Bank to maintain the pace of interest rate rises when it meets next week.
Analysts polled by Reuters expect the ECB to raise rates by 0.25 percentage points to 3.75 per cent, yet “any upside surprise [in inflation figures] would keep the pressure up to stick with the faster hikes”, said Henry Allen, macro strategist at Deutsche Bank.
Japanese stocks stood out, hitting an eight-month high after Bank of Japan governor Kazuo Ueda announced a review of the central bank’s ultra-loose monetary policy, opting against an immediate change of tack. The Nikkei 225 rose 1.4 per cent to its highest level since late August, with all sectors bar basic materials in positive territory.
Other Asian stocks also advanced, with China’s CSI index up 1 per cent and Hong Kong’s Hang Seng index gaining 0.5 per cent.
The yen fell as much as 1.7 per cent to ¥136.23 per dollar, its lowest level since early March, following Ueda’s first policy board meeting, with overnight interest rates held at minus 0.1 per cent and its yield curve control policy unchanged.
International oil benchmark Brent crude rose 1.5 per cent to $79.51 a barrel, while US equivalent West Texas Intermediate added 2.7 per cent to $76.80 a barrel.
