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13th May 2022

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Line chart of Index level showing Nasdaq Composite clinches new closing record

The technology-heavy Nasdaq Composite set a new closing record on Monday, its first since a Treasury market sell-off clobbered growth stocks in February, as investors looked ahead to a week expected to be dominated by strong results from corporate America.

The index, which includes tech stalwarts such as Apple, Amazon and Microsoft, climbed 0.9 per cent. The advance outpaced the rise by the blue-chip S&P 500, which rose 0.2 per cent to also finish at a new record.

The gains precede a busy week for first-quarter earnings reports, including results that will be delivered from the three aforementioned companies. Earnings growth is expected to be the strongest since 2018.

Many of the world’s largest companies, including General Electric and Facebook, report quarterly earnings in the coming days. A quarter of the constituents of the S&P 500 have already reported, with 84 per cent of this group beating analysts’ forecasts, according to the research house DataTrek.

“It will be crucial to see whether companies will give strong enough guidance [on the next quarter] to sustain very high valuations,” said Gergely Majoros, portfolio adviser at Carmignac. “The evolution of the economic cycle next year could be a slowing of the recovery, and this would be a difficult transition for investors.”

The gains in global equity markets accompanied a slight sell-off in US government bond prices, which earlier this year proved a catalyst for a slide in US tech shares. However, while the yield on the benchmark US Treasury rose 0.01 percentage points to 1.57 per cent, its real-yield fell deeper into negative territory.

Tom di Galoma, a managing director at Seaport Global Holdings, noted the drop in the real yield signalled that the threat of inflation was no longer “on the forefront of investors’ minds”. Negative real yields have helped to support the stock market rally over the past year, including the run-up in valuations on tech and other fast-growing companies.

While investors will be focused on earnings, the week also includes the Federal Reserve’s latest policy setting meeting, which starts on Tuesday.

The US central bank has bought about $120bn of bonds a month since March last year to push down borrowing costs and support financial markets through the pandemic. Gross domestic product data released later in the week is expected to confirm the US economy has rebounded strongly in recent months thanks to a rapid vaccine rollout and fiscal stimulus.

Analysts do not widely expect the world’s most powerful central bank to discuss raising interest rates or reducing its asset purchases this month, even after US president Joe Biden unleashed $1.9tn of stimulus spending and announced plans to spend a further $2tn on infrastructure. But taper talk could begin as soon as June, according to some economists.

Jay Powell, Fed chair, is likely to reiterate in his Wednesday press conference that raising the main US interest rate is “a long way off”, ANZ Bank economists Tom Kenny and Rini Sen wrote in a research note. “We anticipate that at the June meeting, should the economy continue to advance at a rapid clip, the Fed will be open to discussing tapering,” they said.

Brent crude, the international oil benchmark, fell 0.7 per cent to $65.65 a barrel as commodities investors reacted negatively to India’s surge in coronavirus cases. India is the world’s third-largest importer of oil.

The dollar index, which measures the currency against a basket of those of significant trading partners, fell 0.1 per cent to hover near its weakest level since early March.

2021-04-26 20:35:13

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By admin