Stocks pared gains as traders assessed the path of monetary policy against the latest economic readings. The dollar climbed with bonds.

The S&P 500 came off session highs after Tesla Inc. extended its plunge, with strong results being overshadowed by cautious comments on supply-chain troubles. Apple Inc. rallied ahead of its quarterly earnings, with the shares bouncing back from their longest losing streak since 2016.

More than US$5 trillion has been wiped out from stock values this year as traders struggled to price the outlook for monetary policy. Markets had been factoring in four quarter-point hikes in 2022, but that edged toward five after Federal Reserve Chair Jerome Powell suggested the economy and labor market could withstand a faster pace if warranted. Data Thursday showed U.S. gross domestic product accelerated by more than forecast in the fourth quarter, while applications for state unemployment insurance fell for the first time in four weeks.

Comments:

• “The fourth quarter, especially the back half, was marked by omicron somewhat blindsiding investors and consumers, but with GDP coming in strong, it’s encouraging to see the economy took the challenges in stride,” said Mike Loewengart, managing director of investment strategy at E*Trade from Morgan Stanley. “But when you look at the market, investors are still trying to digest the Fed’s path forward, so some ups and downs are likely to persist.”
• “Stronger U.S. economy in Q4 + more hawkish Fed than expected = stronger U.S. dollar,” wrote Fawad Razaqzada, an analyst at ThinkMarkets, referring to fourth-quarter economic data.
• “The Q4 GDP report was a nice upside surprise in a string of recently underwhelming economic data points,” said Mike Reynolds, vice president of investment strategy at Glenmede. “Looking ahead, investors should turn their attention to next week’s jobs report, which should provide a more timely assessment of unfolding economic trends.”

Other corporate highlights:

• Hedge fund magnate Bill Ackman has acquired more than 3.1 million shares in Netflix Inc., offering a vote of confidence in the streaming giant after the stock collapsed in recent days.
• Pfizer Inc.’s COVID-19 pill received backing from the European Union’s drugs regulator, offering a tool to manage coronavirus infections at home and ease the burden on hospitals.
• Blackstone Inc. hauled in a record pile of new cash, taking its biggest quarterly leap yet toward a goal of managing US$1 trillion.
• McDonald’s Corp.’s earnings for the fourth quarter came in below estimates, weighed down by staffing struggles and supply-chain snags.

On the geopolitical front, Russia criticized Western security proposals aimed at defusing a crisis over Ukraine, while still leaving the door open to further talks. This comes a day after the U.S. and the North Atlantic Treaty Organization delivered written responses to Russia, broadly rejecting Moscow’s demands that the alliance close its door to Ukraine’s potential membership and roll back forces from former Soviet states. 

What to watch this week:

• Euro zone economic confidence, consumer confidence Friday.
• U.S. consumer income, University of Michigan consumer sentiment Friday.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.6 per cent as of 10:41 a.m. New York time
• The Nasdaq 100 rose 0.2 per cent
• The Dow Jones Industrial Average rose 0.8 per cent
• The Stoxx Europe 600 rose 0.4 per cent
• The MSCI World index fell 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.7 per cent
• The euro fell 0.9 per cent to US$1.1134
• The British pound fell 0.7 per cent to US$1.3369
• The Japanese yen fell 0.6 per cent to 115.38 per dollar

Bonds

• The yield on 10-year Treasuries declined six basis points to 1.80 per cent
• Germany’s 10-year yield advanced two basis points to -0.05 per cent
• Britain’s 10-year yield advanced three basis points to 1.22 per cent

Commodities

• West Texas Intermediate crude fell 0.3 per cent to US$87.05 a barrel
• Gold futures fell 1.8 per cent to US$1,799.20 an ounce