Sunday, May 26, 2024

Dow Jones futures climb on inflation data, while Tesla shares fall over Autopilot recall probe

HomeStock-MarketDow Jones futures climb on inflation data, while Tesla shares fall over...

An impressive earnings showering from some of technology’s biggest heavyweights helped propel the U.S. stock market higher on Friday, allowing investors to overcome another unexpectedly hot inflation report.

The tech-heavy Nasdaq led the broad rally, with futures contracts tied to the index soaring 1.1% ahead of the opening bell. Dow Jones Industrial Average futures climbed 0.3% while S&P 500 futures advanced 0.9% as Wall Street cheered blowout results from megacap behemoths Alphabet and Microsoft.

The upbeat sentiment arrived despite data showing the Federal Reserve’s preferred measure of U.S. inflation accelerated more than expected in March, posing a potential headache for the central bank as it battles to cool price pressures.

The personal consumption expenditures (PCE) price index rose 0.3% from the prior month and 2.7% from a year earlier, according to the Commerce Department. Economists surveyed by Econoday had forecast a 2.6% annual increase. A core reading that strips out volatile food and energy components also climbed 0.3% month-over-month and 2.8% from the same period in 2022, exceeding projections for a 2.7% gain.

The hotter-than-anticipated inflation prints kept alive concerns that the Fed may need to raise interest rates higher and for longer than anticipated to bring rapidly rising costs under control. However, the specter of persistent price pressures took a back seat – at least temporarily – to investor euphoria over the outsized profits emanating from Silicon Valley.

“Good news continues to trump bad news. While the PCE numbers came in hot, they weren’t scorching,” said Jack Ablin, founding partner at Cresset Capital. “As long as inflation keeps decelerating from last year’s peak, even if gradually, the Fed likely has enough wiggle room to avoid overly aggressive rate hikes that risk snuffing out economic growth altogether.”

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Alphabet (GOOGL), the internet juggernaut behind Google’s online search engine and YouTube video platform, saw its stock catapult more than 12% premarket after its first quarter earnings and revenue trounced Wall Street’s targets. The company also announced a $55 billion stock buyback and its first ever $0.59 per share quarterly dividend.

Software colossus Microsoft (MSFT) joined its tech peer in delivering upbeat results, posting fiscal third quarter profits and sales that topped forecasts thanks to robust demand for its cloud computing services. Microsoft shares spiked over 4% in early trading.

The duo’s stellar performance provided a much-needed boost for the battered technology sector, which has come under intense pressure this year amid rising interest rates, recession angst and a brutal selloff in richly-valued growth stocks. Their outsized market clout also helped lift the broader indexes, illustrating once again the influence that Alphabet, Microsoft and a handful of other technology titans can exert over daily trading.

“We’ve seen this phenomenon play out time and again – when the big tech names put up great numbers, it can shift the whole market narrative and inject a serious upward force,” said Michael Mullaney, director of global markets research at Boston Partners. “The strength in Alphabet’s results shows just how powerful their AI capabilities have become as a revenue driver.”

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Alphabet, Microsoft, Apple, Amazon, Nvidia, Tesla and Meta Platforms are collectively known on Wall Street as the “Magnificent Seven” due to their gigantic scale and dominance over their respective spheres of technology. With a combined market value of over $7 trillion, their stock moves can whipsaw the indexes and influence perceptions about the health of the overall economy.

Among the other tech giants on Friday, shares of chipmaker Nvidia (NVDA) advanced 1.8% premarket while Tesla (TSLA) dipped 1% after U.S. regulators opened an investigation into the electric automaker’s massive recall late last year to install software allowing vehicles to better detect stopped emergency vehicles.

Elsewhere, Apple (AAPL) traded slightly higher ahead of its fiscal second quarter results next week. The iPhone maker has seen its stock lose around 15% from last year’s record peak as rising interest rates have weighed on the expensively-valued growth stock.

The broad tech rally helped distract from some disappointing earnings reports in other sectors. Intel (INTC) plunged over 8% after the semiconductor giant issued a lackluster revenue outlook, while streaming video platform Roku (ROKU) dropped nearly 4% despite topping estimates.

But the pain didn’t extend to social media company Snap (SNAP), which skyrocketed an eye-popping 23% after unexpectedly reporting a quarterly profit and adding more users than projected.

Wall Street’s buoyant start to the final trading day of a volatile month marked a 180-degree turn from Thursday’s session which saw major indexes swinging between deep losses and modest gains. Markets were initially roiled by data showing the U.S. economy barely expanded in the first three months of 2023 before rebounding as traders shrugged off the weak GDP print.

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The seesaw action exemplified the tug-of-war playing out between bulls and bears as investors attempt to decipher conflicting signals about the trajectory of the economy and the future path of the Fed’s rate hiking campaign. After an aggressive series of rate increases aimed at slowing the hottest inflation in over 40 years, there are mounting worries that the central bank’s policy tightening could tip the economy into a recession.

For now, however, Corporate America’s first quarter report cards have telegraphed a message of economic resilience. With around two-thirds of S&P 500 companies having reported results so far, overall earnings growth for the period is estimated at 2.4%, according to data provider Refinitiv. While trailing the elevated expectations at the start of earnings season, the latest profit picture belies fears of an imminent economic downturn.

“While growth has certainly decelerated sharply from last year’s blistering pace, the earnings trajectory tells us the economy is still managing to expand, albeit in fits and starts,” said Quincy Krosby, chief global strategist at LPL Financial. “The biggest risk is that the Fed overtightens monetary policy based on backward-looking data and inadvertently quashes demand to an excessive degree.”



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Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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