Wall St rallies as earnings season boost offsets economy worries

Ever since Q1 reporting started and despite the fact that it’s come in considerably better than expected, investors have been skeptical and have stayed in sell mode due to skepticism that the early results couldn’t last. Today that ended.  Today a terrific Q1 report from Facebook/Meta changed all that and the direction of the overall market direction with investors finally now looking past negative macro data. 

Today’s macro was particularly negative with businesses cutting back on inventory.  As today’s expert put it, “investors are looking past macro. It’s definitely not irrational exuberance.”  Q1 earnings estimates have today drastically improved to a 2.4% contraction, up from a 5.1% a month ago and a 3.9% two days ago.  Volume was a tad above the 4-week average at about 10.8 billion. 

Thu April 27, 2023  6:34 PM

Wall St rallies as earnings season boost offsets economy worries

By Sinéad Carew, Sruthi Shankar and Ankika Biswas

DJ: 33,301.87  -228.96        NAS: 11,854.35  +55.19        S&P: 4,055.99  -15.64      4/26

DJ: 33,826.16  +524.29       NAS: 12,142.24  +287.89      S&P: 4,135.35  +79.36     4/27

April 27 (Reuters) - The tech-heavy Nasdaq led a Wall Street rally on Thursday as a strong quarterly report from Facebook parent Meta Platforms Inc overshadowed concerns over slowing U.S. economic growth.  Shares in Meta (META.O) closed up 13.9% after touching their highest level in more than a year after the company forecast quarterly revenue above estimates, and CEO Mark Zuckerberg said AI was increasing traffic to its services and boosting ad sales.  As a result the S&P 500 communication services index (.SPLRCL) ended up 5.5% for its biggest one-day percentage gain since February 2022. Along with Meta, it got a boost from Alphabet Inc (GOOGL.O), which reported upbeat results earlier this week, while Comcast (CMCSA.O) rose 10.3% after its financial results impressed on Thursday.

“Facebook earnings last night and more broadly largecap earnings continue to surprise to the upside," said Mona Mahajan, senior investment strategist at St. Louis based Edward Jones.  "There were big expectations going into earnings with these sectors already outperforming so there was a little bit of hesitation about whether they would disappoint. In fact, a lot of these business models proved pretty resilient," she said. "And the other part of the story is that a lot of companies that are cash rich have been issuing buyback programs.”  After ending the regular session up 4.6% Amazon.com Inc (AMZN.O) were up another 7.6% in after-hours trading when it reported quarterly revenue ahead of estimates after the close.

The Dow Jones Industrial Average (.DJI) rose 524.29 points, or 1.57%, to 33,826.16, the S&P 500 (.SPX) gained 79.36 points, or 1.96%, to 4,135.35 and the Nasdaq Composite (.IXIC) added 287.89 points, or 2.43%, to 12,142.24.  While the S&P and the Dow registered their biggest daily percentage gains since Jan 6, the Nasdaq boasted its biggest single-day advance since March 16.  Of the S&P 500's 11 major sectors the biggest gainer was communications services followed by consumer discretionary (.SPLRCD), up 2.8% while smallest gainer was energy (.SPNY), which advanced just 0.5%.

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina noted that economic data released on Thursday told a less positive story than earnings reports.  It showed U.S. economic growth slowed more than expected in the first quarter as an acceleration in consumer spending was offset by businesses cutting back on inventory investment.  "All things being equal the macro data this morning were very negative. With the market up this much after that data it shows that investors are looking past macro ... Earnings reports have been very good. Its definitely not irrational exuberance," said Zaccarelli.

Expectations for first-quarter earnings have drastically improved, with analysts projecting a 2.4% year-over-year drop for profits at S&P 500 companies versus the 5.1% decline forecast at the start of the earnings season, according to analyst estimates gathered by Refinitiv.  Even as slower GDP growth reflected a drag from weak inventory investment, the Federal Reserve still is expected to raise interest rates by another 25 basis points next week.  “Generally the economy looks like its decelerating. We think as the Fed continues with maybe one more rate hike next week we’ll start to see some more deceleration. Our base case is for a mild economic downturn in the second half,” said Edward Jones' Mahajan.

Eli Lilly and Co (LLY.N) advanced 3.7% after raising its full-year profit forecast, while Comcast rose soared as it beat estimates for quarterly profit, thanks to broadband services demand and higher theme park attendance.  EBay Inc (EBAY.O) climbed 5.1% after the e-commerce company forecast current-quarter revenue above projections.  AbbVie Inc (ABBV.N) fell about 8% after the drugmaker missed quarterly revenue estimates for its newer treatments, while heavy machinery maker Caterpillar Inc (CAT.N) dipped as a flat order backlog signaled demand may have peaked.

Advancing issues outnumbered declining ones on the NYSE by a 3.26-to-1 ratio; on Nasdaq, a 1.89-to-1 ratio favored advancers.  The S&P 500 posted 19 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 41 new highs and 200 new lows.

On U.S. exchanges 10.77 billion shares changed hands compared with the 10.41 billion average for the last 20 sessions.