Markets have been volatile in recent sessions on fears that the Federal Reserve’s plan to push through higher interest rates could trigger a broader economic slowdown. The central bank is set to announce the second of seven rate hikes next Wednesday after a two-day meeting, and the prospect of a hike above 0.25% has had markets on edge for weeks.
The S&P 500 fell 5.9% in April and the Nasdaq about 10%. The Dow — which posted single-day declines of nearly 1,000 points on Friday and 800 points on Tuesday — is down 2.7%.
First-quarter earnings were the focus of investors’ concerns given the economic headwinds – soaring inflation, the rise of the omicron sub-variant and the Russian invasion of Ukraine – which defined the three first months of the year.
But the results were largely positive: Of the 202 companies that reported earnings on Thursday afternoon, about two-thirds beat Wall Street expectations, according to financial research firm Fundstrat. The average margin was 7%.
“With oversold markets, investors are jumping on good news with some of these earnings and taking advantage of a market that is having its worst month since 2020,” said MissionSqaure Retirement’s Wayne Wicker.
Meta shares inflated 18% even after missing first-quarter earnings targets. But it reported a 4% increase in the number of daily active users on Facebook, bringing its number to 1.96 billion.
Qualcomm traded up 9.8% after reporting record quarterly revenue driven by strong demand for its chips amid supply shortages during the pandemic.
These companies have seen steep declines since the start of the year, Wicker said, and are now experiencing something of a “relief rally,” Wicker said.
Twitter gained 1.1% after the company reported mixed financial results, just days after its board agreed to sell the platform to Elon Musk in a $44 billion deal. dollars. The company reported a 6.4% increase in daily active users compared to a year ago. But the company missed analysts’ revenue forecasts, according to Refinitiv data cited by CNBC, which the company attributed to “headwinds associated with the war in Ukraine.”
Tesla, meanwhile, was down about 1% as Musk feared selling a good chunk of his automaker’s stock to fund his Twitter purchase. Tesla shares have fallen nearly 21% this month.
Meanwhile, the U.S. economy contracted 1.4% in the first quarter, the weakest in nearly two years, according to data released Thursday by the Bureau of Economic Analysis. The labor market remained strong despite the slowdown, with the Labor Department registering only 180,000 new jobless claims, down 5,000 from the revised level of the previous week.
Analysts said the GDP figures would have a largely neutral effect on the stock market, despite the decline in economic activity. Consumer spending remains strong despite rising prices, notes Matthew Sherwood of the Economist Intelligence Unit. And the economic decline is not large enough to push the Fed off its interest rate hike plan, which is the main factor driving recent market declines, they noted.
“We have positioned our portfolios more cautiously over the past 5-6 months in anticipation of the inflationary threat turning into a one-way street to much higher short-term interest rates, but there is still time for the Fed to get inflation under control and prevent stagflation from setting in, which is an outcome no one wants,” wrote Independent Advisor Alliance’s Chris Zaccarelli.