Big Tech Surges in Late Hours on Blowout Earnings: Markets Wrap

(Bloomberg) -- The world’s largest technology companies soared in late trading as stellar results from Microsoft Corp. and Google’s parent Alphabet Inc. fueled confidence in Wall Street’s most-influential group.

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A $250 billion exchange-traded fund tracking the Nasdaq 100 (ticker: QQQ) climbed 1.2% after the close of regular trading. In a sigh of relief to investors worried about lofty valuations of the sector that has powered the bull market, Alphabet crushed sales estimates and announced a dividend. Its fellow megacap Microsoft also beat forecasts, lifted by corporate demand for the software maker’s cloud and artificial-intelligence offerings.

The late rebound came after the market got rattled by data that showed exactly what investors did not want to hear — a sharp US economic slowdown and stubborn inflation. Gross domestic product increased at a 1.6% annualized rate, trailing all forecasts. A closely watched measure of underlying inflation advanced at a greater-than-expected 3.7% clip.

“The recent GDP reading from the US was bleaker than expected, and didn’t lend itself well to growth-stock sympathism,” said Sophie Lund-Yates at Hargreaves Lansdown. “To that end, the market’s reaction to these results mean more than in usual times.”

Investors have shown they are excited about the prospects of AI — but want tech companies to continue to focus on revenue and profit in the meantime.

Like other big techs, Alphabet has been plowing money into developing AI, a strategy that has helped drive demand for its cloud services. Google is a distant third in the cloud-computing market, trailing Amazon.com Inc. and Microsoft, but the company’s prowess in AI could help it close the gap.

Meantime, Microsoft has been infusing its entire product line with AI technology from partner OpenAI. The bet is starting to pay off, with some customers adding AI tools that summarize documents and generate new content to their Office productivity software or signing up for Azure cloud subscriptions with OpenAI products.

“Overall, both prints indicate that the innovation economy continues to benefit from heightened corporate spending and a strong consumer,” said Tejas Dessai at Global X ETFs.

Despite the rally in both megacaps in late hours, one other giant tech name — Intel Corp. — bucked the trend.

The biggest maker of personal computer processors tumbled after giving a lackluster forecast for the current period, indicating that it’s still struggling to return to the top tier of the chip industry.

Ahead of the close of regular trading on Thursday, the S&P 500 trimmed most of its losses, buoyed by gains in two heavyweights: Nvidia Corp. and Tesla Inc.

Meantime, Treasuries sold off, with yields hitting fresh 2024 highs as the latest economic figures revived the “stagflation” chatter — bringing more uncertainty to the path of Federal Reserve policy. Swap traders pushed back the timing of the first rate cut to December.

“This report was the worst of both worlds: economic growth is slowing and inflationary pressures are persisting,” said Chris Zaccarelli at Independent Advisor Alliance. “The Fed wants to see inflation start coming down in a persistent manner, but the market wants to see economic growth and corporate profits increasing.”

The latest economic data must harden the tone from the Fed next week some, said Krishna Guha at Evercore. “The Fed still goes into a holding pattern circling the airport until it gets a better read on forward inflation dynamics,” he said.

Corporate Highlights:

• Snap Inc. gained in extended trading after projecting that revenue in the current quarter will jump as much as 18%, beating analysts’ estimates and offering a sign that the overhaul to its advertising business has taken hold with marketers.

• T-Mobile US Inc. beat predictions for profit while growth slowed in its wireless high-speed internet business.

• Capital One Financial Corp. posted a first-quarter profit that missed Wall Street estimates as soured credit-card loans increased.

• American Airlines Group Inc. expects a return to profit heading into the busy summer travel season after bad weather and delays linked to air traffic congestion weighed on the carrier’s early-year results.

• Airbus SE will further increase production of its advanced A350 widebody jet as the planemaker benefits from surging demand for long-distance travel and the crisis engulfing its arch-rival Boeing Co.

• Caterpillar Inc. reported first-quarter results that showed machinery sales slipping from a year earlier and warned that the trend is expected to continue in its second quarter.

• Vista Equity Partners-backed automotive data and software services provider Solera is weighing an initial public offering that may raise over $1 billion, according to people familiar with the situation.

Key events this week:

• Japan rate decision, Tokyo CPI, inflation and GDP forecasts, Friday

• US personal income and spending, PCE deflator, University of Michigan consumer sentiment, Friday

• Exxon Mobil, Chevron earnings, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.5% as of 4 p.m. New York time

• The Nasdaq 100 fell 0.5%

• The Dow Jones Industrial Average fell 1%

• The MSCI World index fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.3% to $1.0729

• The British pound rose 0.4% to $1.2513

• The Japanese yen fell 0.2% to 155.63 per dollar

Cryptocurrencies

• Bitcoin rose 1% to $64,705.41

• Ether rose 1% to $3,161.87

Bonds

• The yield on 10-year Treasuries advanced six basis points to 4.70%

• Germany’s 10-year yield advanced four basis points to 2.63%

• Britain’s 10-year yield advanced three basis points to 4.36%

Commodities

• West Texas Intermediate crude rose 1.2% to $83.77 a barrel

• Spot gold rose 0.7% to $2,332.94 an ounce

This story was produced with the assistance of Bloomberg Automation.

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