August 9, 2022
US tech stocks hit three-month high after upbeat data

Backed by solid corporate earnings and positive economic data, US tech stocks hit their highest in three months.

Wall Street’s benchmark S&P 500 index rose 1.6 per cent, with tech and consumer stocks leading the way. This helped correct the fall in the first two days of the week.

The Nasdaq Composite rose 2.6 percent to its highest level since early May. That was helped by a 9.2 percent jump in PayPal shares, leading to a broader rally in the tech sector.

The payments conglomerate on Tuesday became the latest large tech conglomerate to report better-than-expected second-quarter earnings and also announced that active investor Elliott Investment Management has acquired a $2 billion stake in the company.

Strong results from a US services sector survey also fueled investor sentiment. The Institute for Supply Management’s Purchasing Managers’ Index suggested that the sector expanded faster in July than in the previous month, raising hopes of a recession. The report was more upbeat than a similar survey of factory officials released earlier this week.

“recent [ISM services] The results, while well below the red-hot highs of autumn and early winter, are still fairly solid on historical grounds, and July’s growth appears at odds with predictions that the economy is either in recession or on the verge of sliding into one. Closer is Joshua Shapiro, chief US economist at MFR Consultancy.

Government bond markets erased their losses under earlier pressure in afternoon trade.

The yield on the two-year Treasury note, which is particularly sensitive to short-term policy expectations, rose by 3.19 per cent to 3.08 per cent, according to data from Tradeweb. Yields increase when prices fall.

Yields on the benchmark 10-year note fell 0.03 percentage points to 2.7 per cent after rising similarly earlier.

Line chart of the two-year Treasury yield (%), showing a jump in US short-term government bond yields

The volatility highlights the uncertainty over the direction of monetary policy. They also occur during the summer holiday season, when low trading volumes often add to volatility in the financial markets.

Yields fell last week after the Fed signaled that the pace of interest rate hikes may moderate as it announced it would raise benchmark borrowing costs by 0.75 percentage points for the second month in a row.

However, San Francisco Fed Chair Mary Daly said in an interview on Tuesday that the central bank was “nowhere” with its fight to calm inflation, which is running at a 40-year high.

Line chart of the IMPLIed Federal Funds Rate for February 2023 (%), showing Fed rate hike expectations on the ascendance

In a separate interview, Chicago Fed President Charles Evans said a half percentage point increase was likely in September, but that a 0.75 percent increase “could also be okay”.

Richmond Fed Chairman Tom Barkin reiterated the message on Wednesday, emphasizing that the Fed will “do what it needs to do” to get inflation back to its 2 percent target.

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