By Sinéad Carew, Sruthi Shankar and Ankika Biswas
(Reuters) – The tech-heavy Nasdaq led a Wall Street rally on Thursday as a strong quarterly report from Facebook parent Meta Platforms Inc overshadowed concerns over slowing U.S. economic growth.
Shares in Meta soared to touch the highest in more than a year after the company forecast quarterly revenue above estimates, and CEO Mark Zuckerberg said AI was increasing traffic to Facebook and Instagram and boosting ad sales.
The S&P 500 communication services index rallied sharply. Along with Meta, it got a boost from Alphabet Inc, which reported upbeat results earlier this week, and Comcast, whose results impressed on Thursday.
Shares of other megacaps including Microsoft Corp also rose while Amazon.com Inc rallied ahead of its results, due out after the market closes.
“Facebook earnings last night and more broadly largecap earnings continue to surprise to the upside,” said Mona Mahajan, senior investment strategist at St. Louis based Edward Jones.
“There were big expectations going into earnings with these sectors already outperforming so there was a little bit of hesitation about whether they would disappoint. In fact, a lot of these business models proved pretty resilient,” she said. “And the other part of the story is that a lot of companies that are cash rich have been issuing buyback programs.”
But Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina noted that economic data released on Thursday told a less positive story. It showed U.S. economic growth slowed more than expected in the first quarter as an acceleration in consumer spending was offset by businesses cutting back on inventory investment.
“All things being equal the macro data this morning were very negative. With the market up this much after that data it shows that investors are looking past macro … Earnings reports have been very good. Its definitely not irrational exuberance,” said Zaccarelli.
Expectations for first-quarter earnings have drastically improved, with analysts projecting a 2.4% year-over-year drop for profits at S&P 500 companies versus the 5.1% decline forecast at the start of the earnings season, according to analyst estimates gathered by Refinitiv.
According to preliminary data, the S&P 500 gained 78.75 points, or 1.94%, to end at 4,134.74 points, while the Nasdaq Composite gained 287.89 points, or 2.43%, to 12,142.24. The Dow Jones Industrial Average rose 525.25 points, or 1.58%, to 33,827.12.
Eli Lilly and Co advanced after raising its full-year profit forecast, while Comcast rose soared as it beat estimates for quarterly profit, thanks to broadband services demand and higher theme park attendance.
Even as slower GDP growth reflected a drag from weak inventory investment, the Federal Reserve still is expected to raise interest rates by another 25 basis points next week.
“Generally the economy looks like its decelerating. We think as the Fed continues with maybe one more rate hike next week we’ll start to see some more deceleration. Our base case is for a mild economic downturn in the second half,” said Edward Jones’ Mahajan.
On Wednesday, the U.S. House of Representatives narrowly passed a bill to raise the government’s $31.4 trillion debt ceiling that includes sweeping spending cuts. The bill is expected to get stalled in the Senate.
EBay Inc climbed after the e-commerce company forecast current-quarter revenue above projections.
AbbVie Inc fell sharply after the drugmaker missed quarterly revenue estimates for its newer treatments, while heavy machinery maker Caterpillar Inc dipped as a flat order backlog signaled demand may have peaked.
(Reporting by Sinéad Carew in New York, Sruthi Shankar and Ankika Biswas in Bengaluru; Editing by Vinay Dwivedi and David Gregorio)
