After spending most of the week on a roller coaster, U.S stocks staged a strong rally on Friday, ahead of major earnings reports scheduled for release next week.
The S&P 500 gained 4.7% for the week, the Dow Jones Industrials climbed 4.8%, and the tech-heavy Nasdaq surged 5.3%.
Friday’s trading session began with market participants shaking off a negative earnings report from Snap, Inc., released on Thursday afternoon. Then, they focused on a Wall Street Journal report, which suggested that the Fed may ease its monetary tightening after a 75-basis point hike in the November FOMC meeting.
That was music to the ears of bond traders, who drove bond prices higher and yields lower.
The benchmark 10-year U.S Treasury yield slipped from a record of 4.32% on Friday morning to 4.21% by the afternoon. In addition, the 2-year Treasury note dropped from 4.61% to 4.49% by the afternoon.
The decline in U.S Treasury bond yields ended the dollar’s relentless rally, with the U.S Dollar Index (DXY) slipping 1.01 points or 0.89% to 111.88.
A combination of steady yields and a weaker dollar is the proper context for Wall Street rallies.
Steady bond yields bode well with interest rate-sensitive stocks like homebuilders. As a result, they made a significant comeback in late afternoon trade, with the S&P homebuilders index gaining 3.10% for the day.
A weaker dollar bodes well for large U.S. corporations with significant overseas earnings, like big technology companies, which are included in major indexes. For instance, Microsoft gained 2.53%, Netflix 8%, Apple 2.71%, and Amazon 3.53%.
Early in the week, market participants were encouraged by solid earnings reports from the nation’s airliners, flying high on a strong air travel rebound.
Then there were a couple of positive earnings surprises from streaming giant Netflix and global chip companies ASLM and Lam Research.
These solid earnings reports fueled a positive sentiment for next week’s earnings from tech giants Amazon, Google, and Apple. As a result, they aided the shares of these companies on Friday, in addition to the weaker dollar.
“Several high-profile positive earnings reports and an indication that the Fed may slow interest rate hikes after its November meeting buoyed stocks,” Robert R. Johnson, a business professor at Creighton University, told International Business Times. “The biggest factor fueling the bullish action on Wall Street is that it appears the Fed is contemplating slowing rate increases. They would do so only if it appeared that inflation was abating.”
According to FactSet, which keeps close tabs on the financials of Wall Street firms, the earnings season is beginning to look brighter. The number of S&P 500 companies that beat earnings estimates last week was higher than the previous week.
“As a result, the earnings growth rate for the third quarter is higher today compared to the end of last week, but still below the estimated earnings growth rate at the end of the quarter,” said John Butters, VP of research for FactSet in a company blog. “However, both the number and magnitude of positive earnings surprises are below their 5-year and 10-year averages. On a year-over-year basis, the S&P 500 is reporting its lowest earnings growth since the third-quarter of 2020.”
