S&P 500’s Best Week Since November Fueled by Big Tech Surge Amid Inflation Skepticism

Alphabet, the parent company of Google, experienced a significant surge in its stock value on Friday, propelling its market capitalization above $2 trillion for the very first time. This surge contributed to a notable recovery in U.S. stocks for the month of April, with the S&P 500 achieving its most substantial weekly gain since November, largely fueled by the resurgence of major technology stocks.

Despite fresh signs of ongoing inflation and the release of earnings reports from Microsoft and Alphabet, investor sentiment remained positive. Anthony Saglimbene, chief market strategist at Ameriprise Financial, pointed out that the market’s reaction was mainly driven by the robust earnings from these tech giants. He mentioned that investors were relieved to see that the narrative surrounding artificial intelligence and the outlook for Big Tech earnings remained unchanged after Alphabet and Microsoft reported their results.

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

Although concerns about inflation persisted, investors largely overlooked the latest data from the personal consumption expenditures price index, which showed a rise in March consistent with expectations. The core inflation rate, which excludes energy and food prices, increased by 0.3% last month, maintaining the same year-over-year rate seen in February.

On Friday, the S&P 500 rose sharply by 1%, 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 and offsetting its April losses.

Investors have been adjusting their expectations regarding potential actions by the Federal Reserve to address 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 concerns 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 inflationary pressures, posing challenges for potential interest rate cuts.