Wall Street equity markets rallied on Wednesday after reassuring earnings reports from tech titans Microsoft and Alphabet soothed markets ahead of a crucial US interest rate decision later in the day.
The technology-heavy Nasdaq Composite US stock index gained 2.7 per cent, with the tech sector rising on relief that inflation and signs of an economic slowdown were not hurting big players in the industry as deeply as some analysts had expected. The broad S&P 500 share index rose 1.5 per cent.
“These positive results offer some stability to markets,” said Louise Dudley, global equities portfolio manager at Federated Hermes.
Microsoft, one of the largest businesses in the tech sector that dominates US stock indices, missed analysts’ quarterly revenue and earnings forecasts but said that its cloud computing business remained robust. The group’s shares rose 5.2 per cent in early trading in New York.
Shares in Alphabet also added 7 per cent in response to financial results from the Google parent. Chief executive Sundar Pichai assured investors that the group would continue to make long-term investments despite the slowest pace of quarterly revenue growth for two years.
The Nasdaq has dropped by almost a quarter so far this year as higher interest rates and surging inflation reduced investors’ appetite for buying tech companies’ long-term growth stories.
Paul Jackson, head of asset allocation research at Invesco, cautioned that the latest rally in tech stocks might not hold. “The markets are very fragile and you get moments of pessimism followed by moments of hope,” he said. “After big declines in markets you’ve got people looking to buy into good news and to find something to believe in.”
Later on Wednesday, the US Federal Reserve will announce its latest interest rate decision, with futures markets tipping a rise of 0.75 percentage points to 2.25 to 2.5 per cent after inflation hit a fresh 40-year high in June.
The US central bank raised its main funds rate by 0.75 percentage points in June, with tighter monetary policy helping drive the S&P 500 last month into a bear market, defined as a 20 per cent drop from a recent peak.
The blue-chip US equity gauge has risen more than 5 per cent during July, however, as traders viewed signs of a US economic slowdown as likely to influence the Fed to reduce the pace of its rate increases later this year.
“The markets are predicting that the Fed will need to let up on the brakes by the end of this year or heading into next year,” said Ellen Gaske, lead economist at PGIM Fixed Income.
The yield on the two-year Treasury note, which tracks monetary policy expectations, ticked up by 0.04 percentage points to 3.08 per cent.
The 10-year Treasury yield hovered around 2.8 per cent, down from about 3.5 per cent in mid-June, with the decline reflecting rising prices for the debt as investors scaled back interest rate and economic growth expectations.
In European equities, the regional Stoxx 600 share index added 0.5 per cent and London’s FTSE 100 rose 0.6 per cent.