Stocks jumped Friday, amid signs that central bankers may be starting to take a possible global growth slowdown seriously—and raising hopes in the market that they won’t increase interest rates as quickly as feared.
Despite Friday’s performance, the three major U.S. indexes all fell for the week: The Dow, the S&P 500, and the Nasdaq slipped 2.1%, 2.4%, and 2.8%, respectively.
But Friday’s gains come a day after all three indexes rallied in the late afternoon Thursday from their lows.
“US stocks are finishing on a high note as investors take comfort from a round of Fed speak that suggests financial markets won’t have to price in even more tightening of financial conditions,” wrote Edward Moya, senior market analyst at Oanda.
The rising market is a sign that the bulls are not done fighting, and it may have been triggered by comments made by Federal Reserve Chair Jerome Powell. In a radio interview, Powell said that he expects the Fed to lift rates by half of a point at each of the next two meetings as the central bank combats inflation, reiterating what he said at last week’s Federal Open Market Committee meeting.
However, Powell also acknowledged that it might not go as smoothly as the central bank would like—a sign, perhaps, that the Fed won’t simply raise rates without concern for possible economic damage. The stock market seems focused on the less aggressive interest rate hiking plans rather than the current risk to the economy, wrote David Rosenberg, founder of Rosenberg Research.
“We said last week that the Fed put is still alive but at a lower level,” wrote NatAlliance Securities’ Andrew Brenner, referring to the fact that the Fed has begun reassuring the stock market as it nears bear market territory, defined as a 20% drop. The S&P 500, which finished Friday at 4,204 points, needs to fall to 3,837 points to reach such territory.
To be sure, this “Fed put” isn’t like previous ones. In the past several years, the Fed would signal that rate cuts could be on the way when there was trouble in the economy. Today, markets are expecting several rate hikes, but there might not be as many as markets fear. Powell is showing that he can take a hint from an ailing stock market and an economy facing several risks.
Others are thinking along the same lines. “Where is the Fed ‘put?’” wrote Dennis Debusschere, founder of 22V Research. “With the S&P down… there is a growing assumption that at some point the Fed will reduce rate hike rhetoric to calm markets.”
Another factor that might be a boon to the market: China implied that its stringent lockdowns to stop the spread of Covid-19 may end on May 20. The drop-off in economic activity in China has threatened global growth, while also exacerbating supply-chain problems. It’s even posed a threat to some companies’ ability to meet sales expectations.
(ticker: AAPL) said on its earnings report that it could see a $4 billion to $8 billion hit to sales in the current quarter because of China lockdowns. Friday, Apple stock gained 3.2%.
As for why the rest of the tech sector outperformed other parts of the market? The 10-year Treasury yield can’t seem to climb much above 3%, a level it hit several days ago. The 10-year’s yield fell from that level in late 2018—and hasn’t gone much far above it since 2011. It’s currently at 2.93%. Lower yields on long-dated bonds make future profits more valuable, boosting the valuations of fast-growing tech companies that are expected to produce a bulk of their earnings many years from now.
“For the Nasdaq, 10-year Treasury yields below 3% have been an important catalyst,” wrote Quincy Krosby, chief equity strategist for LPL Financial.
The rally hasn’t been limited to the U.S. Overseas, the pan-European
climbed 2.1%, and Tokyo’s
Even cryptocurrencies were gaining, as
and other digital assets surged after the largest crypto briefly dropped to its lowest level since late 2020. The price of Bitcoin has climbed 3.1% in the last 24 hours— just shy of the key $30,000 level.
Here are six stocks on the move Friday:
(TWTR) slumped 9.7% after
(TSLA) CEO Elon Musk—who recently agreed to buy the social media group—said the deal was “temporarily on hold” pending a calculation related to the number of fake accounts on Twitter. Tesla shares rose 5.7%.
(HOOD) shot up 24.9% after a filing revealed that Sam Bankman-Fried, co-founder of crypto exchange FTX and an influential voice in digital assets, bought a large stake in the retail stock broker.
(FIGS) tumbled 25% after the maker of fashionable medical scrubs cut its revenue forecast for 2022 to a range of $510 million to $530 million, down from $550 million to $560 million, citing supply chain challenges and inflation.
(AFRM) surged 31.4% after the “buy now, pay later” group raised its revenue forecast for fiscal 2022 to a range of $1.33 billion to $1.34 billion, up from prior estimates of $1.31 billion.
(FSLR) stock gained 4.6% after getting upgraded to Overweight from Neutral at Piper Sandler.