Big Tech's $200 Billion Surge Leads Stock Market Rally—But Rate-Fueled Optimism May Be Fleeting

Topline

Stocks rose broadly Friday on the back of a massive rally from technology titans as investors yet again latched onto hopes that the Federal Reserve’s rate hike campaign will soon conclude, though one economist says the “unprecedented” macroeconomic conditions mean rate optimists shouldn’t be so sure the central bank will relent any time soon.

All three major stock indexes notched consecutive days of gains for the first time in a month.

Getty Images

Key Facts

The S&P 500 and tech-heavy Nasdaq’s respective 1.5% and 1.9% gains marked each index’s best performance since February 7, while the Dow Jones Industrial Average rose 1%, or 340 points.

It’s the first time since early February that all three major indexes notched consecutive winning days as the market cheered on a variety of factors that eased pressure on stocks, including declining bond yields and support from Atlanta Fed president Raphael Bostic for an upcoming pause on rate hikes.

Driving Friday’s upswing were gains from the nation’s largest technology companies, with Microsoft (1.7%), Tesla (4.8%) and Facebook parent Meta (6.5%), Amazon (2.9%), Apple (3.3%), Netflix (1.5%) and Google parent Alphabet (1.7%) each in the green as investors piled back into the rate-sensitive stocks.

Those seven companies tacked on $214 billion in market capitalization Friday.

Read Related Also: CPI Will Set The Tone For Financial Markets

Contra

“Right now it’s very clear that the Fed needs to keep hiking,” Brian Rose, a senior economist at UBS’ Chief Investment Office, told Forbes in a phone interview, adding he wouldn’t rule out a 50 basis point increase to the federal funds rate at the central bank’s meeting later this month. The “unprecedented dynamic” of the U.S. economy emerging from the depths of the pandemic calls into question whether the U.S. will return to the 14-year status quo of low interest rates, according to Rose. The Fed’s “made it very clear they’re willing to trigger a recession” to avoid “inflation becoming entrenched,” Rose said.

Key Background

Over the last 12 months, interest rates soared to their highest levels since before the Great Recession, as the Fed forcefully wielded its primary tool for tamping down inflation. Elevated rates contributed to major stock losses throughout 2022, especially for tech companies, whose share prices are far more sensitive to the impact of borrowing costs on future profits than their peers. Personal loans have also become more expensive amid the increase in the federal funds rate, with 30-year mortgage rates hovering around their highest level since 2008 as the housing market flails.

Surprising Fact

Cryptocurrencies cratered Thursday and Friday as stocks rallied, with bitcoin falling 7% as one-time crypto banking giant Silvergate Capital became the latest industry player to flirt with bankruptcy.