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Nasdaq 100 climbs 1% as earnings season picks up

An electronic stock board is displayed inside the Kabuto One building in Tokyo, Japan, on March 17.   (Kiyoshi Ota/Bloomberg)
By Rita Nazareth Bloomberg

Stocks rose after their longest slide this year, with bond-market volatility abating and traders wading through a raft of earnings for clues on the outlook for Corporate America. Oil slid below $84 a barrel.

The S&P 500 halted a five-day drop while the Nasdaq 100 gained 1%. Bullish forecasts from Verizon Communications Inc., 3M Co. and General Electric Co. lifted the shares.

Meta Platforms Inc. fell after being sued by California and a group of states over harmful youth marketing claims.

Treasury 10-year yields edged lower, following Monday’s intense volatility. Bitcoin briefly topped $35,000.

Investors looking to the earnings season for a dose of good news are hanging their hopes on big tech.

The five biggest companies in the S&P 500 – Apple Inc., Microsoft, Alphabet, Inc. and Nvidia Corp. – account for about a quarter of the benchmark’s market capitalization.

Their earnings are projected to jump 34% from a year earlier on average, according to analyst estimates compiled by Bloomberg Intelligence.

“As these big tech stocks go, so does the overall market,” said David Trainer, chief executive officer of New Constructs. “If big tech companies blow their numbers out of the water and provide strong guidance for future earnings, then we could see the stock market rally strongly through the end of the year.”

Rising rates have made already stretched big tech valuations look increasingly expensive, with the group remaining the most-crowded trade among fund managers, according to Bank of America Corp.

That’s prompted investors to pay up for protection against a selloff in Alphabet and Microsoft – two of the handful of heavyweights responsible for all of the S&P 500’s advance this year.

Investors are banking on them to deliver earnings growth big enough to push the stocks higher - or at least enough to justify this year’s gains.

The pain in long-duration growth stocks, fueled in recent weeks by a relentless surge in Treasury yields, is finally on the verge of subsiding. That is, at least, if the so-called Taylor Rule is anything to go by.

The equation, posited by Stanford economist John Taylor in 1993, has become a way to measure how the Federal Reserve can use its overnight bank lending rate to tame inflation or stimulate the economy.

Now, it’s approaching a critical inflection point for the U.S. equity market by signaling that the central bank has finally normalized rates.

US business activity picked up in October after back-to-back months of stagnation, helped by a rebound in factory demand and an easing in service-sector inflation

“The U.S. economy is generating growth, but it still must digest the ‘last mile’ of policy tightening in our view,” said Don Rissmiller of Strategas.

“We would be more convinced that the growth we are seeing was high-quality or sustainable growth if the labor market was re-balanced (with labor demand equal to supply). Until then, the risk remains that continued restrictive monetary policy becomes too restrictive.”

Elsewhere, Chinese President Xi Jinping stepped up support for the economy, issuing additional sovereign debt, raising the budget deficit ratio and even making an unprecedented visit to the central bank.

Bank of Japan officials are likely to monitor bond yield movements until the last minute before making a decision on whether to adjust the yield curve control program at a policy meeting next week, according to people familiar with the matter.