Strong earnings spur stocks rally amid concerns over banks and inflation

Traders have been anticipating the end of Federal Reserve rate hikes near term, with cuts before year end. Reuters

US equities extended a rally on Friday as investors wrestled with strong corporate earnings against concerns about regional banks and inflation. Treasuries rose.

The S&P 500 gained 0.8 per cent after better-than-expected earnings from the likes of Exxon Mobil and Intel, up 1.3 per cent and 4 per cent, respectively.

However, the gains proved precarious in mid-day trading after Federal Reserve officials called for broad changes to bank rules after Silicon Valley Bank’s collapse.

The Nasdaq 100 rose 0.7 per cent, weighed down by Amazon’s 4 per cent loss after a warning over growth in its key cloud computing business.

“Earnings relative to expectations appear resilient with a little more than half the S&P 500 reported,” wrote Scott Chronert, managing director at Citi Research.

“Full-year numbers and revisions have stabilised of late. The issue remains sentiment and positioning.”

Markets are on edge over the uncertainty of Federal Reserve interest rate hikes, after fresh inflation data on Friday increased the likelihood of an increase next week and possibly in June.

Traders have been anticipating the end of rate hikes near term, with cuts before year end.

The personal consumption expenditures price index excluding food and energy, one of the Fed’s preferred inflation gauges, rose 0.3 per cent in March for a second month. Compared with a year ago, the measure was up 4.6 per cent, Commerce Department data showed.

“What looks like sticky contemporaneous inflation remains an issue, preventing the market from getting too carried away on the rate-cutting phase to come in subsequent quarters,” wrote Padhraic Garvey, head of global debt and rates strategy at ING Financial Markets.

The yield on the 10-year Treasury fell nine basis points to 3.44 per cent.

US equities ended the month 1.5 per cent higher, as corporate results have lifted investor sentiment in the face of rate-hike uncertainty and a possible recession.

In the latest batch of earnings, Charter Communications gained 7.6 per cent after reporting results, while Snap plunged 17 per cent after missing revenue estimates.

“April largely is a good month. Again, it’s probably earnings-season driven, but we’ve been getting some economic reports that are also saying that the economy, and especially inflation, is likely going in the right direction — just not maybe fast enough,” said Kim Forrest, chief investment officer at Bokeh Capital Partners.

“Businesses and people are spending, inflation is still there, but the data says it’s slowly ramping down.”

In Europe, the Stoxx 600 gained 0.6 per cent, even as an sharp rise in consumer price gains pointed to more rate increases by the European Central Bank.

The Bank of Japan, in contrast, renewed its commitment to stimulus after its first meeting under Kazuo Ueda. It left its short-term policy rate at minus 0.1 per cent and maintained its 0.5 per cent ceiling for 10-year bond yields.

Elsewhere, oil prices gained, gold was little changed, and the dollar was modestly stronger against major peers.