Tech Stocks Led Market Advance After Inflation Cooled In April

Barry Adams
10 May, 2023
New York City

Stocks traded higher and tech stocks led the way after cooler-than-expected inflation stoked market rally. 

Consumer prices rose at a slower pace for the 10th month in a row but underlying inflationary forces remained strong, reflecting rapid rise in shelter costs. 

A slight easing of inflation dragged yields on 2-year and 10-year Treasury notes, further supporting market gains.  

Food prices rose at a slower pace and energy prices continued to decline but rising cost of accommodation sustained the overall inflation. 

Despite the cooling of inflation over the last ten months in a row, prices are still rising. 

Accumulated inflation has lifted prices of many manufactured items and services between 20% and 80% and home prices have jumped between 50% and 200% in several urban areas.  

While Federal Reserve policymakers are still debating the amount of rate increase and hoping that cumulating rate increases will slow the economy and cool inflation, prices of most items and homes are not likely to drop to pre-Covid level. 

Stubborn inflation is becoming deeply entrenched in the broader economy, sending a signal to policymakers that a premature pause on the rate hike may make it even harder to bring down inflation to the Fed's target rate of 2%. 

Policymakers are hoping for a cumulative effect of ten rate increases to lower aggregate demand and weaken inflation forces but prices are still rising, stoking wage inflation. 

Interest rates have been on the rise since March 2022 but real rates are still negative and not restrictive enough for the economy to slow down and cool inflation below the long term average of 2%.  

 

Inflation Cooled 10th Month In a Row 

Consumer price index in April eased to 4.9% from a year ago after rising at 5.0% in March, the U.S. Bureau of Labor Statistics reported Wednesday. 

On a monthly basis, seasonally adjusted inflation index accelerated to 0.4% in April after rising 0.1% in March. 

The index for shelter was the largest contributor to the monthly all items increase, followed by increases in the index for used cars and trucks and the index for gasoline.

The annual pace of shelter inflation edged slightly down to 8.1% from 8.2% in the previous month, used car and trucks prices declined 6.6% after falling 11.6%, food prices eased to 7.7% from 8.5% and energy costs fell 5.1% from 6.4% after gasoline prices dropped 12.2% and fuel costs declined 20.2%. 

Core prices, which excludes food and energy, rose 5.5% from a year ago and 0.4% from the previous month. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.5% to 4,137.64 and the Nasdaq Composite jumped 1.04% to 12,306.44.  

The yield on 2-year Treasury notes hovered at 3.92%, 10-year Treasury notes edged up to 3.45% and 30-year Treasury bonds held at 3.81%. 

Crude oil fell $1.03 to $72.67 a barrel and natural gas prices fell 7 cents to $2.19 a thermal unit. 

 

U.S. Stock Movers 

Airbnb Inc plunged 13.6% to $109.56 after the company released quarterly results and forecasted weak second quarter outlook. 

Revenue in the first quarter increased 20% to $1.8 billion from $1.5 billion and gross booking value soared 19% to $20.4 billion. 

The online booking company swung to a profit of $117 million compared to a loss of $19 million and diluted earnings per share was 18 cents compared to (3 cents) a year ago. 

Nights and experiences booked on the platform increased 19% to 121.1 million. 

The company forecasted revenue in the second quarter between $2.35 billion and $2.45 billion, an increase between 12% and 16%. The company also estimated a slight decline in average daily rate driven by "driven by mix shifts and the introduction of new Host pricing tools."

GoodRx Holdings Inc decreased 5.1% to $4.45 after the company reported quarterly results that were ahead of market's expectations but the online pharmacy estimated weaker-than-expected second quarter and full-year results. 

Akamai Technologies Inc increased 5.1% to $82.90 after the cloud computing services provider lifted its annual revenue outlook on better-than-expected quarterly results. 

Rivian Automotive Inc soared 8.2% to $15.0 after the electric vehicle maker reiterated its 2023 production target of 50,000 trucks and reported narrower-than-expected quarterly loss. 

Dutch Bros Inc declined 7.3% to $30.33 after the coffee chain operator reported weaker-than-expected same store sales and total revenue in the first quarter. 

 

European Markets Struggle On Rate Path Worries 

European markets drifted lower and investors reacted to corporate results. 

Benchmark indexes in Frankfurt, Paris and London traded lower but hovered near record highs as investors worried about future rate paths. 

Despite multiple interest rate hikes and four-decade high inflation, corporate profits have met or exceeded investor expectations. 

Travel and leisure companies are reporting stronger-than-expected sales and energy companies are reporting weaker revenues and earnings after record results in the previous year. 

The Bank of England is set to increase its key lending rate by 25 basis points to 4.5% as inflation stayed near 10% in March. 

Investors across Europe are worried that rapid rise in interest rates are feeding into the broader economy and negatively impacting the commercial real estate sector. 

Banks in the region are also in focus on the worries that higher rates have caused significant losses, though unrealized, in government securities held by banks of all sizes.  

Investors are also awaiting the latest report on the U.S. consumer price inflation later in the day with expectations running around 5% and core inflation easing slightly to 5.5%. 

 

Europe Indexes & Yields 

The DAX index decreased 0.3% or 40.68 points to 15,914.85, the CAC-40 index fell 0.2% or 15.72 points to 7,380.71 and the FTSE 100 index declined 0.2% or 15.52 to 7,748.67. 

For the year so far to the close of Tuesday, the DAX index increased 13.1%, the CAC-40 index 11.9% and the FTSE 100 index about 2.6%. 

The yield on 10-year German Bunds inched up to 2.31%, French bonds traded slightly higher to 2.92%, the UK gilts inched higher to 3.84% and Italian bonds advanced to 4.24%.

The euro edged higher to $1.095, the British pound to $1.262 and the Swiss franc to 89.09 cents.

Brent crude fell 77 cents to $76.67 a barrel and the Dutch TTF natural gas decreased €0.40 to €36.55 per MWh.

 

Europe Stock Movers 

Alstom SA decreased 2.5% to €22.84 after the transportation company delayed its mid-year targets by a year and blamed it on macroeconomic conditions. 

Revenue in the full-year 2023 ending in March increased 7% to €16.5 billion and adjusted net profit increased to €292 million from a loss of €173 million a year ago. 

Credit Agricole SA increased 5.5% to €11.76 after the French lender reported record first quarter revenue. 

Reported group revenue increased 0.5% to €8.9 billion and net income rose 23.6% to €1.7 billion. 

Loans issued in the quarter by regional banks declined 6.2% driven by a 14.3% fall in home loans as higher rates and elevated home prices kept buyers away from the market. 

Credit Agricole SA, standalone revenue in the fiscal year 2023 increased to €6.1 billion from €5.6 billion and net income rose to €1.2 billion from €0.57 billion and earnings per share increased to 36 cents from 15 cents a year ago.   

TUI AG declined 3.6% to 541.80 pence after the tour operator reported a narrower underlying operating loss. 

Revenue in the second quarter increased to €3.1 billion from €2.1 billion and the group's loss expanded to €326.2 million from €321.4 million and loss per share increased to €1.26 from €1.21 a year ago. 

The travel company said summer and winter season bookings increased to  12.9 million and forecasted air travel capacity for summer travel to match 2019 level. 

Melrose Industries PLC increased 3.5% to 439.30 pence after the company said revenues are "materially ahead of expectations." 

The company said in its trading update revenue in the first four months to April increased 19% and adjusted operating margin increased about 10% from a year ago. 

The company forecasted full-year 2023 revenue between £3.35 billion and £3.45 billion and adjusted operating profit between £340 million and £360 million. 

Compass Group Plc increased 1.7% to 2,100  pence after the UK-based catering company reported strong first-half results and lifted its annual outlook.