Wall Street gathers steam as tech-heavy Nasdaq 100 jumps 2%; traders weigh robust earnings over Fed tightening

The advance in U.S. stocks gathered pace as an easing in a Treasury selloff provided respite to markets whipsawed in recent weeks by concerns about tightening monetary policy.

The S&P 500 extended Tuesday’s broad-based rally, with tech stocks recovering about half of their losses this year. Megacaps led the Nasdaq 100 higher, with dip-buying in Facebook-parent Meta Platforms Inc. after a four-day slide wiped about a third off its market value. Both the S&P 500 and Nasdaq 100 posted their biggest daily gains this month. After the bell, Uber Technologies Inc. and Walt Disney Co. gained as results beat analysts’ estimates. 

The 10-year U.S. Treasury yield retreated from levels last seen in 2019 and hit session lows around 1.91% after strong demand at auction of similar-maturity notes. Rates across Europe also fell after France’s central banker said markets may be getting ahead of themselves in pricing rate hikes for this year. A dollar gauge fell. 

Investors are weighing still-robust earnings against worries about a rapid withdrawal of pandemic-era stimulus. About 76% of the 317 S&P 500 firms that have reported results beat earnings estimates, with profits coming nearly 6% above projected levels. But data this week is expected to show U.S. inflation continues to overheat, potentially stoking bets on a more aggressive Federal Reserve liftoff in March. 

“Improving economic data will support risk assets unless the Fed needs to reset the outlook for financial conditions lower,” Dennis DeBusschere, founder of 22V Research, wrote in a note. Until it is clear financial conditions need to tighten further, he said he favors cyclicals relative to defensives, especially as the economic headwinds of omicron fade and demand growth firms.

Bets on the pace of rate hikes have increased since the January Fed meeting, shifting to roughly five this year versus the three that officials forecast in December. Fed Bank of Cleveland President Loretta Mester said Wednesday she anticipated it will be appropriate for policy makers to raise rates at a faster pace, reiterating a January comment that she supported a first hike in March. Atlanta Fed President Raphael Bostic said earlier “every option is on the table.”

“Investors certainly appear encouraged by the fact that the falling-knife period looks to be in the rear-view mirror and we’re now seeing signs of stabilization,” Craig Erlam, a senior markets analyst at Oanda, said in a note. “Of course, that could change quickly if the inflation outlook worsens, and we won’t have to wait long for the next hurdle on that front, with the U.S. CPI data being keenly anticipated.”The euro briefly rose to session highs versus the dollar after Bloomberg reported, citing officials with knowledge of the matter, that a growing number of European Central Bank policy makers were losing faith in the institution’s current inflation forecasting, emboldening their shift toward hiking rates later this year.