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Wall Street extends gains on Fed’s rate outlook and ahead of tech earnings

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Vrasidas Neofytou
Head of Investment Research

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Wall Street extends gains on Fed’s rate outlook and ahead of tech earnings
Wall Street extended last week’s huge gains during Monday’s trading session, on hopes that the Federal Reserve is likely nearing a slowdown in its pace of tightening, pushing the appetite for riskier assets such as technologies, cyclical, and small caps higher, at a time investors awaited the latest set of technology Q3 earnings for further clues into the health of the U.S. economy.

Equities built on Friday’s gains during Monday’s regular trading session, with the Dow Jones Industrial Average rising 1.3%, to close at 31,499, the tech-heavy Nasdaq Composite finishing 0.9% higher, and the S&P 500 adding roughly 1.2%.

Nasdaq Composite, 2-hour chart

Investors are assessing the outlook for monetary policy from the U.S. Federal Reserve, as the latest weakness in the U.S. business activity increases the probability that the policymakers would slow the pace of interest-rate increases or if Fed will pause after hiking rates in December and February.

S&P flash PMI data showed U.S. business activity contracted for a fourth straight month in October, the latest evidence of an economy softening in the face of high inflation and rising interest rates expecting.

The retreating dollar and yields (on weaker U.S. macroeconomic data) this week also helped support the two-day rally on the risky assets. The DXY- dollar index, which measures the currency against six major peers, fell as low as 111,50 on Monday, the weakest level since Oct. 6, while the 10-year Treasury yield dropped to near 4,15%, below the multi-year peak of 4,33% hit intraday on last Friday.

Big technology earnings week:

Tech investors will keep an eye on the coming Q3 big technology earnings this week, starting today with earnings reports from Alphabet and Microsoft, followed by Meta Platforms on Wednesday, and Apple and Amazon on Thursday, which might be a turning point for the sector and market in case of robust or better-than-expected earnings.

Market participants have cut their earnings estimates for many tech companies over the last months since their oversized debt is vulnerable to higher dollar and interest rates, coupled with expectations for a lower consumer demand growth amid a potential recession, and the damage of the 40-year record-high inflation on the consumer confidence.

The gloomy outlook has triggered a selloff in the growth-sensitive tech sector, with tech-heavy Nasdaq Composite retreating from early 2022 highs of 16,800 points to the intraday lows of 10,500 hit in mid-October, or down approximately 35%.

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