US equities rally as strong earnings push sentiment higher

US equities have enjoyed a strong tech-led rebound on Thursday after stronger than expected Meta Platforms earnings. The S&P 500 was last up nearly 3.0% and above 4,300 and the Nasdaq 100 was last up nearly 4.0%.

But the major US indices remain on course to post hefty on-the-month losses and the macro backdrop remains difficult. Stronger than expected earnings results from Facebook parent company Meta Platforms that saw FB shares last trading up by more than 18% on the session ignited a tech-led rally in US equity markets on Thursday.

Tech behemoths Microsoft (+2.1%), Alphabet (+4.1%), Apple (+4.2%) and Amazon (+5.0%) all surge, with other large tech names also posting solid gains. As a result, the Information Technology index was last trading up around 4.0%, Communication Services gained 4.4% and Consumer Discretionary gained 2.9%.

Bullishness in the tech space was infectious and all eight of the remaining major sectors also gained at least 1.0% on the day, with Energy performing notably well with a 3.0% gain as crude oil prices rallied. In terms of the major US indices, the S&P 500 index was last trading higher by just shy of 3.0% having reclaimed the 4,300 level for the first time this week.

Technicians said a break above this key level could open the door next week to a push towards resistance in the upper 4,300s in the form of mid-April lows (in the 4,380s) and the 50-Day Moving Average (near 4,390).

Amid the outperformance in big tech, the Nasdaq 100 was last trading just shy of 4.0% higher near 13,500, which would mark the indices best one-day performance of the year. The Dow, meanwhile, was last trading a respectable 2.0% higher near 34,000.

US equities were unfazed by data that showed a surprise contraction in US GDP in Q1, which analysts explained away as a temporary weakness as a result of elevated imports and due to rampant Covid-19 infections at the time. Some cited month-end flows as supportive, with major asset managers and pension funds likely needing to up their exposure to equities to mitigate the impact of this month’s severe losses.

While Thursday’s strong rebound does lighten the mood a little for US equity investors, its still been a torrid month. The S&P 500 is currently on course to post a more than 5.0% drop, similar in scale to January’s decline. The Nasdaq 100 index, meanwhile, is on course to post a slightly more than 9.0% decline, which would mark the worst one-month drop since 2008 and leaves the index flirting once again with “bear market” territory (i.e. more than 20% below recent highs). The Dow, meanwhile, is on course for a more modest 2.0% monthly loss.

A combination of bearish factors including nerves about aggressive monetary tightening from the Fed, a global growth slowdown, prolonged inflation, geopolitics (Russo-Ukraine war & sanctions) and China lockdown risk have all been cited as weighing on the market this month. Given recent developments on the latter two fronts, pessimism about prolonged elevation of inflation and slowing global growth likely are not going anywhere any time soon and the Fed seems to be on autopilot until it gets rates back to neutral.

May is likely to be another difficult month for investors. One reason for optimism would be if the earnings season continues to go well, which net-net, it has up until now. According to Reuters citing Refinitiv data, as of Thursday 81% of the 237 S&P 500 companies to report earnings had beaten analyst expectations, above the historical average beat rate of 66%.