The world’s largest technology companies drove a rebound in stocks, with traders bracing for a deluge of results from Corporate America that will test this year’s US$4 trillion rally.

Earnings season kicks into full swing Friday, with JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. reporting. A solid economy is expected to fuel a rise in profit growth for S&P 500 companies — and strong margins from big tech will be key. Also helping sentiment Thursday was an inflation report that trailed estimates a day after a hot price reading curbed bets on Federal Reserve rate cuts.

“It’s not going to be Fed rate cuts that drive the market going forward, rather it’s going to be earnings,” said George Ball, chairman of Sanders Morris. “Corporate earnings are much stronger than people have anticipated even in this elevated interest-rate environment.”

The S&P 500 hovered near 5,200, while the Nasdaq 100 added 1.6 per cent. Alphabet Inc. got closer to the $2 trillion mark, Amazon.com Inc. hit a record high and Apple Inc. jumped on news it plans to overhaul its Mac line. Financial shares came under pressure, with Morgan Stanley tumbling on a news report regulators are probing its wealth arm. Globe Life Inc. sank after a short-seller call.

Treasury 10-year yields rose two basis points to 4.57 per cent. A sale of 30-year bonds garnered lackluster demand. The euro dropped after the European Central Bank signaled cooling inflation will soon allow it to cut rates.

Wall Street projects S&P 500 members will show 3.8 per cent annual growth in earnings per share for the first-quarter reporting period, data compiled by Bloomberg Intelligence show. That performance could at the very least offer support for a struggling and still-pricey market, assuming companies deliver as projected.

Profits for the so-called Magnificent Seven companies in the S&P 500 — Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc., Nvidia Corp., Meta Platforms Inc. and Tesla Inc. — are on course to rise 38 per cent in the first quarter, according to Bloomberg Intelligence.

“The next challenge is earnings season, with the reaction to news likely to pave the path forward for equities,” said Mark Hackett at Nationwide.

Indeed, earnings will be watched closely to see whether growth can justify an S&P 500 price-earnings ratio that’s roughly 20 per cent above its 10-year average. 

At 21 times profits, that translates to an earnings yield of 4.8 per cent — a multiple that looks increasingly unfavorable with 10-year Treasury yields rising to 4.5 per cent. In fact, the valuation edge by stocks now sits near the smallest in two decades.

“We find ourselves in an environment where stocks appear fully valued, market interest rates are climbing and the consensus expectation for Federal Reserve rate cuts is dwindling,” said John Lynch at Comerica Wealth Management. “It is therefore imperative, in our opinion, that corporate profits continue to expand to justify current levels of equity valuation and investor sentiment.”

On Friday, Wall Street will be closely watching banks’ outlook and commentary around key profit drivers like net interest income and investment banking. Fewer interest rate cuts could bolster net interest income prospects for many large-cap banks and lead to upward guidance revisions.

Since hitting a trough in October, the group has soared past the broader market’s gains. 

“Investors will be looking towards bank CEO comments for continued signs of a resilient economy and confirmation of a soft landing in 2024,” said Christine Short at Wall Street Horizon.

The same headwinds and tailwinds are in play for banks this year as in 2023, she noted.

“High interest rates still help banks maintain healthy levels of net interest income, but on the flipside have negative implications when they lead to loan defaults from borrowers that can no longer contend with higher costs,” Short added. “The promise of lower interest rates had fueled a rally in the banks this year, but with a tight labor market and stubbornly high inflation readings, that expectation has sputtered.”

Traders also kept a close eye on the latest economic data.

U.S. producer prices increased in March from a year earlier by the most in 11 months, though certain categories that feed into the Fed’s preferred inflation gauge were more muted.

While the latest PPI reading was constructive, investors should be prepared for fewer rate cuts this year — one or two — and for a first potential move not until the July meeting, according to Larry Tentarelli at Blue Chip Daily Trend Report.

“Although we understand the relief with which this report will be received, there is nothing very encouraging contained within it — and the best that can be said is that there was ‘no new bad news’ either,” said Michael Shaoul at Marketfield Asset Management.

Fed Bank of New York President John Williams said the central bank has made “tremendous progress” toward better balance on its inflation and employment goals, but added there’s no need to cut in the “very near term.” His Richmond counterpart Thomas Barkin said the U.S. central bank still has work to do to contain price pressures and can take its time before cutting interest rates.

Fed Bank of Boston President Susan Collins said it may take more time than previously thought to gain the confidence to begin easing policy, possibly warranting fewer rate reductions this year.

Corporate Highlights:

• Tesla Inc.’s Chief Executive Officer Elon Musk is set to visit India and meet with Prime Minister Narendra Modi, sparking speculation about the U.S. company’s investments in the South Asian nation just ahead of the start of national elections.
• Ford Motor Co. slashed prices of its electric F-150 Lightning pickup truck by as much as 7.5 per cent as the automaker prepares to resume deliveries this month following a halt earlier this year over an undisclosed quality issue.
• Nike Inc. was raised to buy at Bank of America Corp., which said consensus estimates “finally look achievable” after projections for fiscal 2025 dropped 35 per cent over the past two years.
• CarMax Inc. reported profits that missed Wall Street’s expectations as high monthly payments scare off would-be used-car buyers.
• Vertex Pharmaceuticals Inc. agreed to buy Alpine Immune Sciences Inc. for a total equity value of about $4.9 billion, adding the biotech company’s immune treatments in its biggest acquisition ever.
• Dish Network Corp., the satellite-TV provider saddled with more than $20 billion in debt and losing customers, has received financing offers from private credit firms, according to people with knowledge of the matter

Key events this week:

• China trade, Friday
• U.S. University of Michigan consumer sentiment, Friday
• Citigroup, JPMorgan and Wells Fargo due to report results, Friday.
• San Francisco Fed President Mary Daly speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.7 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 1.6 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index rose 0.3 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.1 per cent to $1.0729
• The British pound rose 0.2 per cent to $1.2560
• The Japanese yen was little changed at 153.21 per dollar

Cryptocurrencies

• Bitcoin rose 1 per cent to $70,482.01
• Ether rose 0.1 per cent to $3,518.39

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.57 per cent
• Germany’s 10-year yield advanced three basis points to 2.46 per cent
• Britain’s 10-year yield advanced five basis points to 4.20 per cent

Commodities

• West Texas Intermediate crude fell 0.7 per cent to $85.62 a barrel
• Spot gold rose 1.7 per cent to $2,372.98 an ounce

This story was produced with the assistance of Bloomberg Automation.