Alphabet and Microsoft are leading the U.S. stock market towards finishing its first winning week in the last four, with the S&P 500 up 1.2% and on track for its best week since November. Alphabet saw a significant jump of 10.2% after exceeding analysts’ profit expectations and announcing a dividend payout to investors, along with a stock buyback program. Microsoft also experienced a 2.7% increase after reporting stronger profit and revenue, thanks to growth in its cloud-computing business and push towards artificial intelligence technology. However, Intel faced a 9.8% drop after falling short of revenue estimates.
Despite hopes for multiple interest rate cuts by the Federal Reserve dwindling, stocks have been under pressure this month. Inflation remains a concern, with reports showing it to be worse than forecasted. However, economists predict a cooling down of inflation in the coming months as shoppers adjust their spending habits due to slowing wage growth. The overall U.S. economy, though weaker than expected, is still deemed to be on solid footing by Bank of America economists. This interpretation eases concerns of a potential mix of stagnating growth and high inflation, which may be difficult for the Federal Reserve to address.
The Federal Reserve is expected to keep its main interest rate high in an effort to combat inflation and ensure it heads towards their 2% target. Vanguard’s global head of portfolio construction, Roger Aliaga-Diaz, believes that the Fed may be unable to cut interest rates this year, especially with the recent report on stubborn inflation. Stock markets abroad, such as Japan’s Nikkei 225, rose after the Bank of Japan made no major changes to interest rates following a policy meeting. Similar positive trends were observed across Asia and Europe.
The bond market experienced a slight ease in treasury yields following the inflation report, with the 10-year Treasury yield falling to 4.67%. EY Chief Economist Gregory Daco predicts that inflation will decrease as shoppers adjust their spending habits. However, the higher-than-expected inflation readings are likely to keep the Federal Reserve from implementing any interest rate cuts in the near future. With the economy still showing signs of strength and consumers willing to spend, the focus remains on managing inflation and economic growth to ensure stability in the market.
