Wall Street in rally mode despite Meta stock crash

Wall Street's main indexes rallied sharply on Friday after Apple (AAPL) closed the curtain on big tech earnings with third-quarter results topping estimates. Yet investors had punished other tech giants earlier this week. Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN) and Meta (META) all saw their shares take a nosedive in the wake of their earnings reports.

The strong end to the week for U.S. stocks came even as the U.S. 10-year Treasury yield was rising again above the 4% threshold after falling to 3.91% Thursday. The Fed’s preferred inflation measure (PCE price index - personal consumption expenditures, excluding food and energy) advanced 5.1% on a year-on-year basis in September, slightly below the 5.2% predicted. This data encouraged further bets on a smaller interest rate hike in December. Last but not least, the U.S. economy rebounded in the third quarter, growing at a 2.6% annualized rate, driven by a jump in exports despite a stronger greenback. Yet, the GDP report also showed signs of a broad slowdown as consumer and business spending faltered under surging interest rates and high inflation.

The S&P 500 rose 3.95% week-over-week. Despite this rebound, the benchmark index is down 18.15% so far in 2022, still on track for its biggest decline since 2008. The Dow Jones Industrial Average gained 5.72% or 1,779 points (-9.57% for the year), while the tech-heavy Nasdaq index was up 2.24% (-29.04% year-to-date).

European stocks followed suit while the European Central Bank raised interest rates by 75 basis points as expected. The MSCI EMU jumped +3.71% (-18.16% YTD). The FTSE 100 added +1.12% (-4.56% YTD). Rishi Sunak became UK’s new Prime Minister on 25 October 2022 amid red-hot inflation and deep cost-of-living crisis. Financial markets were unnerved after Truss’ disastrous economic policy missteps. Sunak’s meteoric ascent was broadly welcomed by investors as evidenced by the UK 10-year Gilt yield, down 62 basis points week-over-week. The GBP-USD spiked after the confirmation. One pound could buy a little more than $1.16, up 2.46% on the week.

On the flip side, emerging markets fell again (MSCI EM down 2.25% over the week, down 31.37% YTD), highlighting how depreciating currencies, rising borrowing costs and recession fears shake developing economies. China stocks also tumbled after President Xi secured a third term, heightening fears economic growth will be sacrificed for ideological policies. The Hang Seng index tumbled to its 2008 financial crisis low (down 8.32% for the week, down 36.48% year-to-date). The yuan hit a 14-year low (USD-CNY above 7.25, +14% YTD) as China announced a new leadership team and imposed fresh Covid lockdowns in a number of cities. Foreigner investors are fleeing Chinese stocks at a record pace, tipping the year-to-date net flow into negative territory. 

The Indian stock market appears to benefit from those withdrawals. The Nifty 50 index was up 1.20% over the week and up 2.49% YTD. In Japan, the Nikkei index edged up +0.80% (-5.86% YTD).

Communication Services pushed lower by Meta   

META stocks fell 23.70% after a stark revenue report, extending their losses to more than 70% this year. The GOOG stock (down 4.83% over the week, down 33.25% YTD) also weighed on communication services, the only S&P 500 sector in the red this week (-2.85%) and the worst performer in 2022 (-38.46%). Consumer discretionary (+0.71% for the week, -29.70% for the year, second worst performer in 2022) also pushed the broad market lower as the AMZN stock was in freefall (-13.33% for the week, -37.97% for the year). Amazon, which is widely seen as a bellwether for the global e-commerce industry, hit market sentiment with weak results and gloomy forecast, warning that inflation-wary consumers and businesses had less money to spend.

By contrast, investors piled into the other S&P sectors, including the most defensive such as utilities (+6.48%), consumer staples (+6.09%) and heath care (+5.00%). Industrials shone (+6.73%) as many heavyweights reported better-than-expected quarterly results amid price hikes and higher sales volume. Among them, Caterpillar (CAT) gained 15.30% through the week. In addition to stellar numbers for its third quarter, the world's leading manufacturer of construction and mining equipment has also projected solid revenue growth and a significantly higher adjusted operating profit margin for its fourth quarter.

The IT sector fared well too (+4.28%) as Apple Inc (AAPL) shares jumped 5.75%. The iPhone maker's fourth-quarter results showed some resilience in the face of a weak economy and strong US dollar that have led to disappointing reports from other tech companies such as Microsoft. The MSFT stock fell 2.58% over the week (down 29.87% year-to-date).