S&P 500 pushes towards 4600 as strong Google earnings extend market rally into fourth day

• The S&P 500 is pushing towards 4500, up around 0.8% on the day and spurred by strong Google earnings.
• That puts the index on course for a fourth successive positive session as equities continue their strong start to February.
• Focus has turned to upcoming Facebook and Amazon earnings ahead of Friday’s official US jobs report.

US equity markets enjoyed a broad-based rally for a fourth successive session on Wednesday, with the latest leg in the rebound from January’s lows driven by strong earnings from tech giant Alphabet (Google’s parent company). GOOG shares surged as much as 10% on Wednesday after the company posted record quarterly sales following Tuesday’s market close and announced a new 20 to one stock split. Analysts said this would make investing in the company more appealing to the retail crowd. After the closing bell, focus then switches to earnings from Meta Platforms (Facebook) ahead of Amazon results on Thursday.

Strong Google earnings helped lift the S&P 500 0.8% to the 4580s, with the bulls eyeing a challenge of the 4600 level. Equity analysts reasoned that strong tech earnings could catalyze a recovery back towards early January levels, as long as upcoming economic data releases don’t provoke further Fed tightening fears. The Nasdaq 100 index was 0.7% higher and managed to break back above the 15K level, while the Dow was up 0.6% to back above 35.5K. Compared to January lows, the S&P 500 trades 8.7% higher, the Nasdaq 100 10.2% higher and the Dow 7.3% higher.

However, the three indices are still 4.9%, 9.7% and 3.7% below recent record highs. Whilst a more cautious tone to Fed rhetoric this week has aided recent gains, for equities to return back to record levels, more certainty that the Fed isn’t going to tighten “too” aggressively is needed. Policymakers this week suggested that a 50bps rate hike in March is highly unlikely and emphasised that the timing and pace of upcoming tightening remain uncertain and data dependent. That means equity markets will be closely scrutinising upcoming data releases, the most important of which this week include Friday’s labour market report.

Wednesday’s weak ADP figures will strengthen the market’s conviction that Friday’s headline payrolls number is likely going to be poor. But Fed members have said they expect this and flagged wage growth and labour slack metrics as more important to monitor. If Average Hourly Earnings growth surprises to the downside like last Friday’s Q4 Employment Cost Index figures did (recall that helped equities at the time), that could spur a strong finish to the week for equities. More broadly, bad jobs data is good jobs data as far as the US stock market is concerned, with investors hoping to see numbers that will keep the Fed cautious and tightening monetary policy at a more measured pace in 2022.