February 3, 2023

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US stocks make strong gains despite bleak Microsoft outlook and a hawkish Fed

2 min read

US stocks rose on Thursday, brushing off the latest bleak corporate earnings forecast from Microsoft as well as comments from Federal Reserve vice-chair Lael Brainard suggesting the central bank may pursue aggressive rate raises into September.

The S&P 500 gained 1.8 on Thursday after a rocky start to trading, while the technology-heavy Nasdaq Composite rose 2.7 per cent. Both indices closed Wednesday’s session 0.7 per cent lower.

Microsoft early on Thursday cut its quarterly revenue forecasts on the back of unfavourable exchange rates. The dollar has risen sharply since the start of the year, which reduces the value of the revenue American companies earn abroad when translated back to the US currency. After dropping early in the session, Microsoft’s stock recouped those losses, ending the day 0.8 per cent higher.

The prospect of higher interest rates, which can eat into companies’ future earnings, also did little to dim US stocks. Brainard on Thursday said that making a case for a pause in rate raises in September was “very hard”, throwing water on the prospect of a more dovish Fed, which had been bandied about by investors curbing their growth outlooks.

US government bonds were muted on Thursday after Brainard’s remarks. The yield on the benchmark 10-year US Treasury note was up 0.01 percentage points higher at 2.91 per cent. The policy sensitive two-year yield was flat at 2.64 per cent.

The move in Treasuries followed a bout of selling a day earlier after stronger-than-expected results from a closely watched survey of America’s manufacturing sector, indicating that the Fed may have more room to raise borrowing costs without triggering a recession.

US jobs data due out on Friday will offer further clues about how far the central bank may tighten policy to curb price rises, with a hotter labour market potentially indicating the need for more aggressive action. Economists polled by Reuters are expecting employers in the world’s largest…

2022-06-02 16:13:21

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