Wall Street equities rose on Monday, as investors looked ahead to earnings reports later this week from US technology titans Alphabet, Amazon and Facebook owner Meta.
The broad-based S&P 500 index added 0.3 per cent in morning dealings, with its information technology sub-index rising 1.2 per cent. The gauge had added 0.8 per cent over the course of the previous week. Meanwhile, the technology-heavy Nasdaq Composite index gained 1.4 per cent on Monday.
Investors have had to navigate increasingly choppy conditions since the start of the year, balancing persistently high rates of inflation and the likelihood of tighter monetary conditions with a mixed set of fourth-quarter results from Wall Street’s biggest companies.
Of the 44 companies to have so far provided formal full-year earnings per share guidance, 23 have been guided above consensus and 21 have been guided below, according to Goldman Sachs research.
Apple, the world’s most valuable company by market capitalization, last week posted record revenue in the fourth quarter of 2021, sending its share price 7 per cent higher and helping Wall Street’s technology-heavy Nasdaq Composite index to a small marginal gain for the week. Fellow tech behemoths Alphabet, Meta and Amazon are set to reveal their latest quarterly figures on Tuesday, Wednesday and Thursday respectively.
The Nasdaq has nonetheless slipped about 12 per cent this calendar year up to Friday’s close, dragged lower by the potential for higher borrowing costs to erode the present value of companies’ future cash flows, and by disappointing results from the likes of Netflix. The broader-based S&P 500 index – which hit a record high as recently as early January – had fallen 7 per cent over the same period.
Those declines have come as officials at the US Federal Reserve have signaled that interest rates may have to rise faster and more aggressively to tackle inflationary pressures in the world’s largest economy.
Raphael Bostic, president of the Fed’s Atlanta branch, stuck to his call for three quarter-point interest rate increases in 2022 in an interview with the Financial Times over the weekend. But he said a more aggressive approach could include raising the federal funds rate by half a percentage point, double its typical amount.
However, Randeep Somel, fund manager at M&G Investments, said the Fed remained “very conscious of making a policy error and having to go back and cut rates if the market slows down”.
January’s decline, he added, constituted an adjustment rather than the start of a bear market proper, and “the market will settle down”.
In government debt markets, the yield on the two-year US Treasury note, which closely tracks inflation expectations, rose 0.03 percentage points to 1.20 per cent. The 10-year yield rose 0.03 percentage points to 1.81 per cent, up sharply from the start of the year. Bond yields move inversely to their prices.
Meanwhile, the German 10-year Bund yield climbed above zero ahead of the European Central Bank’s policy meeting on Thursday, with traders betting that the ECB will join the global move towards tighter monetary policy by raising rates before the end of the year.
Markets are now pricing in two rate rises of 0.1 percent points by December, with some forecasting analysts that the ECB could even opt for a larger quarter point increase in late 2022 in an attempt to bring down high inflation.
In European equities, the Stoxx 600 index was up 0.5 per cent after closing 1 per cent lower on Friday. London’s FTSE 100 dipped 0.1 per cent. In Asia, Hong Kong’s Hang Seng and Tokyo’s Nikkei 225 both closed 1.1 per cent higher, with the Hang Seng Tech sub-index rallying more than 2 per cent.
Investors are also weighing up how to respond should a conflict erupt in Ukraine. Oil prices could rise above $ 100 a barrel if Russian president Vladimir Putin were to cut natural gas supplies to Europe, according to Anatole Kaletsky at Gavekal Research.
“This would result in a global inflation crisis comparable to the one that followed the 1973-74 Arab oil embargo,” Kaletsky wrote in a note on Monday. “A drastic tightening of monetary policy and a profound bear market both in bonds and equities would likely follow.”
Brent, the international crude benchmark, rose 1.2 per cent to $ 91.09 a barrel on Monday.
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