Big Tech Rally Powers S&P 500 to Strongest Week Since November Amid Inflation Fears

Alphabet, Google’s parent company, saw a remarkable surge in its shares on Friday, propelling its market value past the $2 trillion mark for the first time. This boost contributed to a significant recovery in U.S. stocks for the month of April, with the S&P 500 securing its most substantial weekly increase since November, fueled largely by the resurgence of Big Tech stocks.

Investor optimism prevailed despite fresh indications of persistent inflation, as well as the release of earnings reports from Microsoft and Alphabet. Anthony Saglimbene, chief market strategist at Ameriprise Financial, noted that the market’s reaction was primarily driven by the robust earnings from these tech giants.

He mentioned that investors were relieved to see that the AI narrative and the outlook for Big Tech earnings remained unchanged following the release of Alphabet and Microsoft’s results.

Alphabet’s shares surged by 10.2% on Friday, pushing its market value above $2 trillion, while other tech giants like Microsoft, Nvidia, and Amazon also experienced significant rallies.

Despite concerns over inflation, investors largely shrugged off the latest reading from the personal-consumption expenditures price index, which showed a rise in March in line with expectations. The core inflation rate, excluding energy and food prices, increased by 0.3% last month, maintaining the same year-over-year rate seen in February.

The S&P 500 rose sharply by 1% on Friday, with the Nasdaq Composite jumping 2% and the Dow Jones Industrial Average climbing 0.4%. For the week, the S&P 500 recorded a 2.7% increase, marking its most substantial weekly gain since early November, thereby offsetting its April losses.

Investors have been adjusting their expectations regarding the Federal Reserve’s potential actions to combat inflation. While the Fed’s next move remains uncertain, traders in the federal-funds-futures market anticipate rate cuts potentially starting in September, according to the CME FedWatch Tool.

In addition to inflation concerns, investors are closely monitoring U.S. economic growth. The recent gross-domestic-product report indicated a slowdown in economic growth during the first quarter, accompanied by an uptick in inflation, raising worries about a potential “stagflationary” environment.

While some analysts anticipate rate cuts from the Fed to address these challenges, concerns persist that the Fed may not act decisively due to the persistent nature of inflation. The resilience of consumer spending, coupled with a robust labor market, adds to the inflationary pressures, posing challenges for potential interest-rate cuts.