Tech Giants Take US Indices Higher

US indices continued to rally on Tuesday, November 7, as falling Oil (CL) prices and Treasury yields eased investor concerns, hence relieving growth stocks. 

Major Wall Street stock indices extended their winning streaks, with the Nasdaq (US-TECH 100) and S&P 500 (USA 500) marking some of their longest streaks since 2021. Led by Amazon's (AMZN) 2.1% gains, the Nasdaq rose 0.9%, the S&P 500 almost 0.3%, and the  Dow Jones (USA 30) gained 0.2%. 

Hawkish comments from several Fed members had a negative impact on stocks, but positive corporate earnings reports boosted the overall market. Big tech giants Microsoft (MSFT), Apple (AAPL), and Amazon were the key contributors to gains, while the energy sector lagged due to concerns about crude prices.

While many companies have reported better-than-expected earnings this season, investors still weigh the prospects of a potential recession amid the Fed's aggressive interest rate hikes to combat inflation.

Hawkish Fed Remarks Fail to Stop Rally

Fed Governor Christopher Waller described the latest US GDP growth as a "blowout" performance and said rapid growth will be closely watched on Tuesday to make future monetary policy decisions.

In addition, Fed Governor Michelle Bowman saw that "blowout" growth as proof that the US economy may mandate a higher rate. Moreover, Dallas Fed President Lorie Logan was more surprised at the economy's resilience, but still, she emphasised the need for tight financial conditions.

However, some policymakers still believe the recent tightening of financial conditions could dampen the economy, but they need more time to evaluate its impact. While the full effects of the recent rise in yields are uncertain, Governor Waller also pointed out that there have been signs of job growth slowing and the impact of higher long-term Treasury yields has an impact on the US economy. 

Treasuries flattened out on Wednesday after the drop caused by wagers on a Fed pivot as investors await statements from Federal Reserve officials, particularly Fed Chair Jerome Powell's speech. (Source: Reuters)

Stocks March Higher on Upbeat Earnings

Several major companies reported corporate earnings that exceeded some analysts' expectations, boosting relative stock prices despite hawkish comments from some Federal Reserve officials and concerns about global economic growth. Here are the ones who reported on Tuesday, November 7th, and an outlier that took advantage of risk flows:

UBS

UBS Group (UBSG.VX) reported a big net loss in its first quarter post-Credit Suisse integration due to merger-related costs. Despite a net loss of $785 million, the bank remained optimistic about the possibility of resuming share buybacks, leading to a nearly 4% rally in Tuesday’s morning trading. It seems that UBS attracted many wealthy customers, resulting in substantial new investments and deposits in its wealth management and banking businesses.

Uber

Uber (UBER) shares gained nearly 3% in afternoon trading following the release of the company results, with revenue growing from its ride-hailing and food delivery business DoorDash (Dash). Although Uber reported a smaller net profit than expected for the fourth quarter, its revenue and profitability beat analysts' expectations. The company expects further growth in the current quarter, with its stock on pace for its highest close since July 2021.

Datadog

Shares of Datadog (DDOG), a monitoring service for cloud-based applications in partnership with Amazon, surged 28% after the company generated more profit and revenue than analysts projected. Fourth quarter billings increased 30% to $606.5 million, exceeding the estimate of $565.1 million, with earnings nearly doubling last year's 23 cents per share (EPS), 95% up to 45 cents EPS.

D.R Horton

Homebuilder D.R. Horton (DHI) also surpassed estimates, leading to a 1.09% increase in pre-market trading on Tuesday. Total revenues rose 9% year on year to $10.5 billion, driven by the supply of new and existing affordable homes and robust housing demand. Adjusted EPS came in at $4.45 per share, beating estimates by down 4.7% compared to the year prior. The company expects approximately $3 billion in cash flow from homebuilding operations and to repurchase shares worth around $1.5 billion.

Microsoft

Microsoft did not report earnings, but on Tuesday, its stock rose 1.4% to close at a record high, fueled by optimism surrounding its partnership with ChatGPT's mother company, OpenAI, to build advanced Artificial intelligence (AI) systems. The tech giant may benefit from the increasing use of its Azure cloud-computing service as there is solid potential for application development. 

Conclusion

Strong earnings continue to support equities and help investors look past hawkish rhetoric and focus on interest rate cuts. While some FOMC members appear ready to tighten financial conditions to combat stubbornly high inflation, over 10% of analysts expect a hike in December.

If earnings continue to surprise and Fed's Powell delivers negative remarks for bond yields later on Wednesday and Thursday, investors might continue to discount chances of a rate hike. After all, the Fed faces the challenging task of slowing growth enough to tame inflation without causing a recession.