The Nasdaq and S&P 500 ended higher on Thursday and touched roughly five-month highs as a more dovish-than-expected message from Federal Reserve Chair Jerome Powell boosted equities and Meta Platforms shares soared on rigorous cost controls.
But the positive tone quickly evaporated in the post market, when tech giants Apple, Amazon and Alphabet all released disappointing earnings reports.
The Dow slipped in regular trading, dragged down by declines in some big health-care stocks. The TSX was nearly unchanged, with gains in the tech sector offset by declines in energy and materials.
Investors were still digesting the Fed’s policy decision on Wednesday and comments from Powell, who acknowledged progress in the fight against inflation and appeared reluctant to push back against the rally in stocks and bonds.
“I think the reaction to yesterday’s Fed comments really encouraged investors to go risk on,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey. “The bottom line for investors I think is that the Fed’s comments were unexpected.”
After a bruising 2022, stock markets have made a strong start to the year, with tech and other stocks that lagged last year leading the rebound amid hopes that the Fed will temper its aggressive rate hikes, which in turn could alleviate some pressure on equity valuations.
Those trends continued on Thursday. The U.S. communications services sector jumped 6.7%, its biggest daily gain in almost three years, led by a 23.3% surge for Facebook parent Meta. The company revealed stricter cost controls this year and a $40 billion share buyback, as CEO Mark Zuckerberg called 2023 the “year of efficiency.”
The S&P 500′s 50-day moving average moved above the 200-day moving average, a pattern known as a “golden cross” that is perceived by many as a bullish technical signal for near-term momentum.
Shares of megacap stocks Apple, Amazon and Google parent Alphabet also gained strongly ahead of results due after market close on Thursday, with Apple rising 3.7%, and Amazon and Alphabet both up over 7%.
In initial after-hours trading, however, shares of all three companies fell after their respective results, each down about 4% by 445 pm ET.
The S&P energy sector, one of last year’s standout performers, fell 2.5%, while healthcare dropped 0.7%.
The Dow Jones Industrial Average fell 39.02 points, or 0.11%, to 34,053.94, the S&P 500 gained 60.55 points, or 1.47%, to 4,179.76 and the Nasdaq Composite added 384.50 points, or 3.25%, to 12,200.82.
On Bay Street, the Toronto Stock Exchange’s S&P/TSX composite index ended down 10.61 points, or 0.1%, at 20,740.44. It was the index’s second straight day of modest losses after posting on Tuesday its highest closing level in nearly eight months.
“We wouldn’t be surprised to see some back and fill of overbought levels but we are constructive intermediate term,” said Joseph Abramson, co-chief investment officer at Northland Wealth Management.
“I think you’ve seen the peak of the valuation compression because we think that interest rate expectations have peaked both in Canada and the U.S. ... Earnings are going to be weak for a little while but most of that has been discounted,” Abramson said.
The TSX energy sector fell 2.8% as oil futures settled 0.7% lower at $75.88 a barrel, while the materials group, which includes precious and base metals miners and fertilizer companies, was down 1.9%.
Shares of Canada Goose Holdings Inc tumbled 23.7%. The company trimmed its full-year revenue and profit forecasts after COVID-19 disruptions weighed on sales of its parkas and jackets in China during the third quarter.
The technology sector helped cap the TSX’s decline. It ended 2.2% higher, adding to its recent gains.
Industrials were also a bright spot, rising 1%, and heavily-weighted financials were up 0.6%.
In U.S. stock moves, UnitedHealth Group shares fell 5.3% after the U.S. government proposed Medicare Advantage reimbursement rates below analyst estimates, and the stock weighed down the Dow. A 3.3% decline in Merck shares, after the drugmaker forecast 2023 earnings below Wall Street estimates, also dragged on the blue chip index.
Shares of drugmaker Eli Lilly dropped 3.5% after sales of its closely watched diabetes drug missed estimates.
U.S. data Thursday showed jobless claims fell last week to a nine-month low, highlighting the labor market’s resilience, ahead of monthly U.S. employment numbers on Friday.
Reuters, Globe staff
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