Alphabet Pumps, Gold Recovers, Fed Meeting

Alphabet experienced a remarkable 10.2% rise in its stock value on Friday, catapulting its market capitalisation above the historic US$2 trillion mark for the first time. This surge was part of a broader trend in the U.S. stock market, which managed to recover from its losses earlier in April. The S&P 500 index saw its most significant weekly gain since November, largely fuelled by the rallying performance of major technology companies.

The Good News

The positive market reaction provided a distraction from inflation concerns and was primarily driven by the strong earnings performance of these companies, which reassured investors about the trajectory of Big Tech in the face of economic uncertainties.

Core inflation, excluding volatile energy and food prices, rose by 0.3% in March, maintaining a yearly pace of 2.8%, consistent with February's figures.

Investor sentiment now remains cautiously optimistic, with expectations regarding the Federal Reserve's future monetary policy playing a pivotal role. Much of the current market confidence hinges on the belief that any potential Fed rate adjustments will be to help uphold the stock market.

The Bad News

The markets’ current resilience will need to face the Federal Reserve's upcoming policy meeting which is on the 1st of May. Traders are already speculating about potential rate cuts later this year, with September being a focal point according to the CME FedWatch Tool.

Despite the recent rally, concerns linger about the broader market's negative outlook. The S&P 500 Index has displayed a bearish pattern following its breakdown below previous support levels. While the market attempted to rally this week, it fell short of reaching its declining 20-day moving average, signalling potential challenges ahead. The support level around US$4,960 is critical in upholding confidence.

So why are bigger tech companies like Alphabet (GOOGL) doing so well? Perhaps it was not just their earnings report, but also their US$70 billion buyback scheme. This should not be too much of a surprise, as they have been leaning on share buybacks for years. It appears the “stock market” is still heavily driven by overweight tech companies propping themselves up to draw in investors.

Gold has clung to market uncertainty and has stayed in the green on all its major moving average readings: