Signs of strength in the world's largest economy fueled investor optimism about the outlook for Corporate America's earnings, driving stocks toward their best month since late 2020.
The S&P 500 hit all-time highs, extending its April surge to 10% as data showed U.S. growth accelerated amid an AI-driven upswing in business investment. A gauge of small firms, whose fortunes are tied to local activity, climbed 1.8%.
A drop in oil also helped sentiment, lifting bonds. The yen rallied on speculation of Japan intervention. Apple Inc.'s results are due after the close.
The artificial-intelligence engine was on full display in the first quarter, powering the economy through headwinds from a war-fueled surge in inflation. Consumers — who have historically served as the primary growth driver — continued to spend, bolstering optimism about corporate profits.
"As long as the economy continues to grow and companies are able to grow earnings, we can see higher stock prices even in the face of higher energy prices and inflation," said Chris Zaccarelli at Northlight Asset Management.
The caveat is: the longer the war drags on, he says we could see some pullbacks as fears ebb and flow.
A frenzied week of earnings reports offered a glimpse at how tech heavyweights are doing in AI. The upshot: Alphabet Inc.'s Google is seeing a clear payoff from its spending, while Meta Platforms Inc. is lagging behind. The Facebook parent tumbled, with the firm launching a $25 billion sale of investment-grade bonds.
Markets have recovered nicely from the first-quarter lows as earnings take over the narrative, but the question is whether that narrative can hold up if energy prices remain elevated, according to Bret Kenwell at eToro.
"At the same time, investors will be watching how the Fed navigates this backdrop, with a likely more dovish chair entering what appears to be its most divided committee in decades," he said.
The sharp rebound from the March lows pushed most major equity indexes back to record highs. The upside momentum has been fueled in part by signs of de-escalation of the conflict with Iran and hopes the Strait of Hormuz could reopen soon, according to Adam Turnquist at LPL Financial.
"Support for equities has also come from solid first-quarter earnings and economic data that have shown limited signs of deterioration," he said. "However, ongoing geopolitical uncertainty, particularly surrounding Iran, and its implications for growth and inflation are likely to keep volatility elevated."
As the calendar turns to May, Turnquist notes that seasonal trends re-enter the conversation. Historically, that's been a relatively lackluster month for equities. More recently, however, the data tells a different story. Since 2013, the S&P 500 has averaged a 1.5% return.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.8% as of 1:58 p.m. New York time
- The Nasdaq 100 rose 0.8%
- The Dow Jones Industrial Average rose 1.5%
- The MSCI World Index rose 1%
Cryptocurrencies
- Bitcoin rose 0.8% to $76,248.87
- Ether rose 0.8% to $2,258.09
Bonds
- The yield on 10-year Treasuries declined four basis points to 4.39%
- Germany's 10-year yield declined seven basis points to 3.04%
- Britain's 10-year yield declined six basis points to 5.01%
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