Big tech props up U.S. stocks amid mixed economic data

A rally in tech megacaps drove the stock market higher, with traders assessing economic data that suggest the Federal Reserve still has a path to a soft landing — with officials set to further downshift their rate hikes next week.

The S&P 500 headed toward its highest since early December. Tesla Inc. led gains in the tech-heavy Nasdaq 100, with Elon Musk teasing potential for the carmaker to produce 2 million vehicles this year. International Business Machines Corp. weighed on the Dow Jones Industrial Average as its cash flow miss overshadowed a profit beat.

The U.S. economy grew faster than forecast into the end of 2022, but there were signs of slowing underlying demand as the steepest rate hikes in decades threaten growth this year. Sales of new homes rose for a third month in December, wrapping up an otherwise disappointing year in which soaring borrowing costs stifled demand and weighed on the economy.

Comments:

Fawad Razaqzada, market analyst at City Index and FOREX.com:
- “The weaker GDP print compared to the previous reading means the economy is slowing, but the above-forecast number will ease recession fears at the same time. They call this the ‘goldilocks’ scenario. It should be positive for risk assets, I would imagine, and judging by the reaction post the data, that’s how it is proving to be so far.”
Ian Lyngen, the head of U.S. rates strategy at BMO Capital Markets:
- “Overall, it was a solid round of data that is consistent with the Fed continuing on with the steady quarter-point hikes at the next 2-3 meetings and then retaining a restrictive policy stance throughout the year.”
Jeffrey Roach, chief economist at LPL Financial:
- “The Q4 GDP report will likely reignite conversations about the economy sticking a soft landing. Given the softer inflation data, the Fed will likely downshift the pace of rate hikes to 0.25 per cent at next week’s meeting. However, other recession indicators are flashing red so upcoming monthly data, especially on the labor market, will be key for investors.”
Bill Adams, chief economist for Comerica Bank:
- “A slowing trend in real GDP — and more importantly, slowing inflation — is enough for the Fed to reduce the size of their rate hike at next Wednesday’s decision. The Fed is nearing the end of its rate hike cycle, which we forecast will conclude with a final quarter percentage point increase at the March decision.”

A team led by Deutsche Bank AG’s Binky Chadha is maintaining its view that the S&P 500 can rise to 4,500 by the end of the first quarter, 12 per cent above Wednesday’s close, before slumping amid an economic contraction. That’s even as the benchmark is headed for its best January since 2019.

“We view the rally as having further to go,” the strategists wrote. “While a number of leading indicators have fallen steeply, raising the alarm, there are several reasons for a continued pushing out of the timing of a potential recession.”

However, it appears many investors don’t have the appetite to chase the rally. Some 35 per cent of clients in a recent JPMorgan Chase & Co. survey said they plan to add to stock holdings in the coming weeks. That’s a hair away from a 33 per cent reading in late November that marked an all-time low.

Corporate Highlights:

American Airlines Group Inc. expects profit this year to exceed estimates following a slow start, as steady demand for air travel keeps an industry recovery going into 2023.
Southwest Airlines Co.’s operations meltdown last month will lead to a first-quarter loss as the fallout extends into 2023 from a fiasco that led to thousands of canceled flights and prompted a federal probe into its operations.
Lam Research Corp., one of the three biggest providers of chip-manufacturing equipment in the U.S., is cutting about 7 per cent of its workforce to reduce expenses in a declining market.
Dow Inc. plans to cut about 2,000 jobs as the chemical maker seeks US$1 billion in savings and confronts a flareup in energy costs that followed Russia’s invasion of Ukraine.
Mastercard Inc. warned revenue growth would slow even faster than expected this quarter, stoking fears that inflation has put a damper on consumer spending.
Comcast Corp. topped Wall Street profit estimates in the fourth quarter despite continuing to lose customers in its cable and broadband businesses.

Key events:

Earnings for the week include: American Express, Charter Communications, Chevron, HCA Healthcare (Friday)
U.S. personal income/spending, PCE deflator, University of Michigan consumer sentiment, pending home sales, Friday

Some of the main moves in markets:

Stocks