The stock market wrapped up a chaotic week, with solid earnings from tech megacaps bringing solace to traders worried about the many cross-currents rattling economies around the globe.

After a horrific first half, the S&P 500 had its best month since November 2020 and Nasdaq 100 had its strongest performance since April of that same year. Tech led gains Friday, with Amazon.com Inc. and Apple Inc. soaring as higher revenues from the pair of iconic powerhouses countered fears about a profit slowdown at time when the industry is rethinking its staffing needs.

Despite worrisome signals from economic proxies like Walmart Inc. and United Parcel Service Inc., the earnings season as a whole has turned out to be brighter than expected, with about 75 per cent of the S&P 500 firms that have reported results beating analyst estimates. That’s fueling speculation that Corporate America will be able to weather the perfect storm of hot inflation, jumbo-sized rate hikes and dwindling growth. 

Bloomberg Intelligence’s fair-value model suggests a modest recession may have been priced in following this year’s stock selloff. That means a price recovery could emerge with an earnings trough in the second half of 2022.

“The fact that earnings are not as bad as feared is a very constructive thing for the markets,” said Anastasia Amoroso, chief investment strategist at iCapital. “The fact that we have priced in a whole lot of slowdown already, that too has just de-risked the landscape. So I think what can happen for the next couple of weeks is that the technical momentum really keeps moving stocks higher, while we wait for the next Fed move or the next inflation print.”

Despite the big rebound in stocks this month, several market watchers are still skeptical about a sustained rally due to the many economic challenges and the fact that the market hasn’t gotten cheap enough to call it a bottom.

“This is a rally within a bear market rather than the start of a new bull market,” said David Donabedian, chief investment officer of CIBC Private Wealth US. “We would expect a lower P/E ratio if we were at the bottom of the market. While the equity market has partially recovered, we expect it will retest the lows we saw in June.”

Donabedian says optimism about the Fed potentially ending its tightening cycle earlier than expected is “more hope than reality”. He sees further rate hikes and says there’s still a lot of work ahead to bring down inflation while adding that “a slowing job market is on the way.”

Two key US price gauges posted larger-than-forecast increases, with the personal consumption expenditures index -- which forms the basis for the Federal Reserve’s inflation target -- climbing at the fastest pace since 2005. Consumers’ long-term inflation expectations also remained elevated. 

Swaps showed traders increased bets on a 75-basis-point hike in September, though they continued to wager that a 50-basis-point hike was the most likely outcome. 

Fed Bank of Atlanta President Raphael Bostic noted the US economy was “a ways” from entering a recession and officials have further to go in raising rates to get prices under control. Fed Governor Christopher Waller pushed back against economists Olivier Blanchard and Lawrence Summers, who said the central bank’s assertion that it can cool off labor demand without much impact on the unemployment rate “flies in the face” of evidence.

In other corporate news, Intel Corp., the biggest maker of computer processors, slashed forecasts for the year. Roku Inc., the maker of streaming-TV devices, said advertisers are pulling back on spending due to economic concerns. Exxon Mobil Corp. and Chevron Corp. posted their highest-ever profits, reaping the rewards from surging commodity prices. Procter & Gamble Co.’s forecasts growth lagged estimates.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.4 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 1.8 per cent
• The Dow Jones Industrial Average rose 1 per cent
• The MSCI World index rose 1.2 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 per cent
• The euro rose 0.2 per cent to US$1.0221
• The British pound was little changed at US$1.2177
• The Japanese yen rose 0.7 per cent to 133.36 per dollar

Bonds

• The yield on 10-year Treasuries declined one basis point to 2.66 per cent
• Germany’s 10-year yield declined one basis point to 0.82 per cent
• Britain’s 10-year yield was little changed at 1.86 per cent

Commodities

• West Texas Intermediate crude rose 1.7 per cent to US$98.10 a barrel
• Gold futures rose 0.5 per cent to US$1,778.90 an ounce