North American stocks rally for fifth straight session

North American stocks closed higher on Thursday, with the Dow rising more than 200 points for its fifth straight session of gains. Leading the charge was Tesla, which closed up about 11%. The company reported better-than-expected fourth-quarter earnings and record revenue.

Tech Stocks Rise

Tesla was not the only tech stock to close higher. The Nasdaq rose 1.76%, and the S&P 500 rose 1.10%. However, traditional tech giant IBM closed down about 4.5%. The company beat analysts’ expectations but also announced that it would cut 3,900 jobs and expect a weaker-than-expected free cash flow in 2023.

Earnings Season

Investors are reviewing corporate earnings and the latest economic data. U.S. GDP rose 2.9% in the fourth quarter, and initial jobless claims fell to lower-than-expected 186,000 last week. Bill Northey, senior head of investment at UBank, said, “Clearly, we are at the heart of the earnings season. There was some positive news and some less-than-so-positive news.”

Airlines Report Financial Results

Several airlines have also reported financial results. Southwest Airlines lost bigger-than-expected losses as its results were hurt by massive flight cancellations during the holidays. American Airlines Group beat expectations for the fiscal fourth quarter.

Economic Data

Investors are also watching for Thursday’s economic data. The Commerce Department reported that the annualized gross domestic product (GDP) rose 2.9% in the fourth quarter from the previous quarter, the highest since the fourth quarter of 2021, slightly above the average 2.8% forecast by analysts polled by Dow Jones. Consumer spending rose 2.1% in the fourth quarter, down slightly from the 2.3% increase in the previous cycle, but remained in the positive region.

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Inflation and Interest Rates

The GDP report comes as inflation continues in the US and the Fed continues to raise interest rates. Other data also showed that the core PCE price index hit an annualized rate of 3.9% in the fourth quarter, the lowest since the first quarter of 2021, compared with 4% expected and 4.70% expected previously. US durable goods orders recorded 5.6% m/m in December, the biggest increase since July 2020 and sharply better than the expected 2.50%, reversing the previous contraction.

Unemployment

Initial claims for state unemployment benefits were 186,000 in the week ended January 21, the lowest since the week ended April 23, 2022, with 205,000 expected and 190,000 last.

Economic Outlook

After the fourth-quarter GDP data, some investment institutions said the data did not have much impact on the Fed’s interest rate expectations. Swaps trading shows an almost 100% chance of a 25 basis point rate hike at the FOMC meeting next week. The market expects 47 basis point rate hikes for the next two meetings, with policy rates expected to peak at around 4.92% in June. Sam Bullard, senior economist at Wells Fargo Securities, said, “This seems likely to be the last really positive, strong quarterly number we have seen in some time. Markets will study that figure as recent data suggest that economic momentum is continuing to slow.”

What led tech stocks higher on Thursday?

Tesla led tech stocks higher on Thursday, rising 11%.

What are investors reviewing?

Investors are reviewing corporate earnings and the latest economic data.

What was the GDP growth in the fourth quarter?

U.S. GDP grew 2.9% in the fourth quarter.

How did IBM perform in its earnings report?

IBM closed down about 4.5% and beat analysts' expectations, but also said it expected weaker-than-expected free cash flow in 2023 and would cut 3,900 jobs.

How did Tesla perform in its earnings report?

Tesla closed up about 11% and reported better-than-expected fourth-quarter earnings and record revenue.

How did Southwest Airlines perform in its financial results?

Southwest Airlines lost bigger-than-expected losses due to massive flight cancellations during the holidays.

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