Stocks surged on Friday, led by strong gains in technology shares after blowout earnings from companies like Meta Platforms and Amazon. The market also got a boost from a robust January jobs report that showed a still-resilient economy.
Meta Platforms Skyrockets After Earnings Beat
Shares of Meta Platforms, formerly known as Facebook, jumped over 20% after the company reported better-than-expected fourth quarter results on Wednesday. Meta delivered earnings per share of $3.67, easily topping analyst estimates of $2.22. Revenue also beat expectations at $32.17 billion.
The strong report offered investors confidence that Meta’s investments in areas like artificial intelligence and virtual reality are paying off. There were also signs that Meta’s core advertising business is stabilizing after being hit hard last year.
“Meta gave the market the first positive catalyst it has had in a very long time,” said Dan Ives, an analyst at Wedbush Securities. “The Street was bracing for disaster and instead saw a quarter with stabilizing ad trends.”
Meta’s blowout earnings set the stage for gains in other major technology and internet stocks on Friday. The tech-heavy Nasdaq composite jumped over 2%, outpacing the broader market.
January Jobs Growth Tops Expectations
The January employment report also gave stocks a lift on Friday. U.S. employers added a robust 517,000 jobs last month, far exceeding economist estimates of 185,000. It was the biggest monthly jobs gain since July.
The strong hiring numbers indicate the economy remains on solid ground even in the face of high inflation and rising interest rates. The unemployment rate fell to 3.4%, matching a 53-year low.
“This is a labor market that is hot, not slowing, and on fire,” said Nicole DeHoratius, an adjunct professor of operations at the University of Chicago’s Booth School of Business. “It gives credence to the narrative that the economy is not in as dire condition as maybe the Fed thinks it is.”
The blockbuster jobs data raises the likelihood that the Federal Reserve will need to keep interest rates higher for longer to cool inflation. Fed officials have been aiming to tame price increases by slowing demand and hiring.
Nasdaq Powers to Record High
Gains in mega-cap technology companies like Apple and Amazon propelled the Nasdaq to an all-time closing high on Friday. The tech-heavy index surged over 3% to top its previous peak from November 2021.
The Nasdaq has now erased its losses from 2022 when it dropped 33% amid concerns over rising rates and a potential recession. Tech stocks are seen as more sensitive to interest rates given that their lofty valuations rely heavily on future earnings growth.
Nasdaq’s Performance Over Past Year
| Date | Close | % Change (1-Day) | % Change (1-Year) |
|---|---|---|---|
| 2/1/2023 | 11,512.41 | +0.63% | -14.90% |
| 2/2/2024 (New High) | 14,893.35 | +3.25% | +29.43% |
With inflation still running hot in January, some strategists warn the Nasdaq’s rally may not be sustainable.
“I wouldn’t say it’s smooth sailing from here,” said Mike Zigmont, head of trading and research at Harvest Volatility Management. “If we continue to see this kind of inflation data, the Fed still has a long way to go.”
S&P 500 Also Hits Record
The broader S&P 500 index climbed over 2% on Friday to notch its own record closing high, topping 4,500 for the first time ever. The milestone comes on the heels of the Fed’s decision earlier this week to raise interest rates by 25 basis points.
All 11 S&P sectors finished higher, led by gains in technology and communication services. Meta Platforms was the top performer in both groups. Nvidia and Advanced Micro Devices also outperformed within tech.
S&P 500 Top Performers on 2/2
| Company | % Change | Industry |
|---|---|---|
| Meta Platforms Inc. | +23.28% | Communication Services |
| Nvidia Corp. | +14.62% | Information Technology |
| Advanced Micro Devices Inc. | +13.91% | Information Technology |
| Constellation Energy Corp. | +9.55% | Utilities |
| CME Group Inc. | +7.94% | Financials |
The record closes for the Nasdaq and S&P 500 cap off a positive week for stocks thanks to strong tech earnings and easing concerns over the Fed’s policy path. All three major U.S. indexes scored solid gains this week.
What’s Next For Stocks and the Economy
While optimism prevails on Wall Street to close out the week, analysts caution that volatility is likely to remain elevated in the coming months. Lingering inflation pressures, geopolitical tensions, and the threat of recession continue to foster an uncertain environment.
The strength of corporate profits and the labor market remain key factors to watch. Another big batch of earnings reports arrives next week along with fresh data on inflation and retail sales. These readings could dictate whether stocks can extend their record run.
Most economists expect GDP growth to slow substantially this year but remain mildly positive. The baseline case calls for a “soft landing” where the Fed manages to curb inflation without triggering a downturn.
However, the risks of recession have increased given the lagged impact of rate hikes and still-high inflation. The unexpectedly strong jobs numbers suggest the Fed may have to take more aggressive action on rates to achieve their 2% inflation goal.
There are positives though. Household savings remain robust while job openings vastly outnumber available workers, supporting incomes and spending. The U.S. consumer goes into 2023 in relatively good shape compared to past recessions.
For investors, it will be critical to watch incoming data and Fed commentary closely for signs of deterioration. The recent stock rally could quickly reverse if growth shows more pronounced slowing. But for now, the New Year is off to an encouraging start for bullish traders.
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