US and European futures are trading higher as traders are becoming increasingly optimistic about the Fed’s next monetary policy move. Yesterday, we saw a lot of enthusiasm among traders who pushed the S&P 500 index above its long-term downward trend line, which it failed to break above a few times before. This is likely to encourage investors to back riskier assets further. In addition, earnings released from US corporations have also painted a more optimistic picture so far. Today, the focus is going to be on Microsoft earnings which holds a well-diversified portfolio.
US Stock Market
Nasdaq’s price action is highly interesting as it was the worst-performing US stock index in 2022. However, this has changed now as the beaten-down shares of technology companies helped push the Nasdaq Composite Index up by more than 2.2% during Monday’s trading session at lunchtime. The change placed the index that is heavily weighted toward technology on track for a day of gains that are more than 2%.
With a gain of 2.7%, the information technology industry was the S&P 500 sector that did the best. That was partially attributable to the successes of the chip industry. Communication services increased by 1.9%, with notable contributors including Alphabet Inc., Match Group, Netflix, and Meta Platforms.
After many months of vigorous monetary policy tightening, investors have started considering the prospect that the Federal Reserve may be getting ready to reduce the rate at which it is increasing interest rates to combat inflation.
The Federal Reserve Governor Christopher Waller’s comments on Friday seemed to support a hike in interest rates of a quarter of a percentage point at the next meeting. This raised market optimism for a downshift. A story that was published on Sunday in The Wall Street Journal brought up the potential of a spring stop to rate rises. This is an indication that the Fed may be getting close to the conclusion of its campaign to boost interest rates.
Sixty-three percent of the S&P 500 firms that have reported their profits for the fourth quarter so far have recorded results that are better than expected. A total of 57 companies have reported their results so far.
Because of increasing interest rates and concerns of an economic downturn, the growth of incomes has been below average. Profits reported by companies are 2.4% higher than expected, compared to the long-term average of 4.1% and the average of 5.3% for the previous four quarters.
Microsoft’s earnings report for its fiscal second quarter, which is scheduled to be released on Tuesday, could act as the much-needed reset for a stock that investors continue to be more cautious about for the nearer term.
Even though it is expected that the FQ2 print will come with difficulties given the inflationary environment, it is widely anticipated that the earnings print could reset some of the bad omens by giving us news that the worst could be behind us. Suppose we do see such a scenario today. In that case, investors are likely to feel more optimistic as they will appreciate the fact that there is more evidence of stability (and maybe upside) to current 2H forecasts.
Microsoft is widely recognized as one of the most varied and successful companies in the sector, and it has significant potential for long-term expansion.
Smart money believes that Microsoft has a well-diversified portfolio of offerings, which should enable the company to continue taking share in categories such as security, data, and AI. This is despite a general sense of uncertainty in the market, particularly among vendors with consumption-based models.
The price of bitcoin increased by 2.5% yesterday, and this pushed the BTC price above $23,100 for a brief moment. This has certainly made many believe that the worst could be behind us when it comes to the BTC price. However, traders are still skeptical about the bottom being firmly in place. This is because the BTC price needs to break above the 30K price mark, which is a major resistance for now. More importantly, the RSI on the daily time frame shows that the price is overbought, and a retracement is likely to happen.
As for Ethereum, the price also seems to be moving higher. We saw the ETH increase by more than one percent to $1,635.85.
These are the highest levels seen for bitcoin and ether since August 19, This was after the majority of the damage caused by the failure of Terra and the bankruptcies of Three Arrows Capital, Celsius, and Voyager had been done, but before Federal Reserve Chair Jerome Powell’s speech in Jackson Hole and the failure of FTX.
The values of cryptocurrencies are still being driven mostly by macro issues, and many investors use them as a barometer of risk sentiment across a wide range of assets.