Reaction to the latest US interest rate decision and results from the owner of Facebook have triggered another round of share buying. Our City writer discusses how long it might go on.
Support for resurgent technology and growth stocks accelerated today as investors bet US interest rates won’t top 5% and a bullish Meta Platforms (NASDAQ:META) lifted confidence.
Several of London’s fallen stocks from 2022 were at the forefront of the buying activity, led by the UK and US-focused digital publisher Future (LSE:FUTR) as its shares jumped 165p to 1,668p.
The rebound means Future has added over 25% so far in 2023, although the FTSE 250 company remains half the price it was before an aggressive run of global interest rate rises and weakening economic outlook caused a rotation out of growth stocks.
The performances replicate the trends seen in New York, where the Nasdaq Composite is at its highest level since September after a jump of about 14% in 2023. The tech-focused benchmark closed last night at 11,816, still a far cry from the record of 16,200 in November 2021 when valuations were boosted by pandemic-era monetary stimulus.
The NYSE FANG+ Index, which comprises the five core FAANG stocks - Facebook owner Meta Platforms, Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google (Alphabet (NASDAQ:GOOGL)) - plus Tesla Inc (NASDAQ:TSLA), Snowflake (NYSE:SNOW), NVIDIA Corp (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT) and Advanced Micro Devices Inc (NASDAQ:AMD), is also up around 28% this year.
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Meta was one of the worst performers in the FANG+ index last year, shedding two-thirds of its value on concerns over rising costs, the advertising outlook and competition from other social media platforms.
However, the stock has rebounded by a fifth this year and was priced to rise another 20% at Wall Street’s opening bell, after better-than-expected results included robust 2023 revenues guidance and the promise of buybacks worth up to $40 billion (£32.4 billion).
The tech sector’s new-found confidence will be put to the test tonight when companies accounting for 12% of the S&P 500 by value report figures – Apple, Alphabet and Amazon.
Ahead of these updates, FTSE 100-listed Scottish Mortgage (LSE:SMT) Trust rose 29.2p to 776.4p to move Baillie Gifford’s tech industry focused fund further away from the low of 690p seen just after Christmas. Cazoo (NYSE:CZOO) and Trustpilot backer Molten Ventures (LSE:GROW) also rallied 33.4p to 385.2p, a level that compares with November’s net asset value of 837p.
The resurgence has been built on expectations that the US Federal Reserve and other central banks are nearly done with rate increases as inflation pressures start to ease.
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The Fed funds rate now stands at 4.5% and 4.75% after last night’s 0.25% hike, which followed four consecutive increases of 0.75% and December’s 0.5% rise.
The commentary from the central bank anticipates “ongoing increases” in rates, but markets rallied after chair Jerome Powell struck a dovish tone overall and failed to push back against Wall Street expectations that rates won’t stay high for long.
A further increase of 0.25% is forecast next month, with some on Wall Street expecting policymakers to pause at 4.75-5% before potentially cutting rates later in the year.
Analysts at City broker Liberum said: “Markets clearly think the Fed will pivot and are daring the Fed to hike rates beyond 5%. This means that the current rally can continue into March and possibly into May but the higher they climb the harder they fall.
“The longer the market keeps rallying, the more likely it will become that the Fed will have to hike in May to get its point across.”
UBS Global Wealth Management notes that January’s stock market rally has also been fuelled by China’s reopening and technical factors such as light investor positioning.
It added: “In our view, it will be difficult for the Fed to feel comfortable pausing the cycle until there is a better supply demand balance in the labour market.
“We think it is still too early to expect the Fed to pivot policy, so the risk is that the US rally may not prove sustainable.”
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