Stocks rise as personal spending drives Friday’s rally

Stocks rise this week as a busy week of economic reports and earnings was overshadowed by the Russian invasion of Ukraine.

Cryptos rallied early on Friday but lost momentum as the day progressed. The crypto market as a whole rose 2.43%, with Bitcoin and Ethereum posting gains of 1.9% and 2.46% respectively.

Russian invasion

The Russian invasion of Ukraine was by far the biggest driver of markets this week, with stocks opening sharply lower on Thursday morning after Wednesday night’s invasion. This followed weeks of the aggressor flirting with confrontation at the border.

The latest developments to unfold on Friday are Chinese state banks restricting funding for Russian commodities and President Biden announcing sanctions against Putin himself. The first highlights the limits of China’s commitment to maintaining ties with Russia as major Chinese banks comply with US sanctions.

The S&P 500 initially fell more than 2.6% on Thursday morning before a sharp reversal saw the index end the day up 1.5%. Meanwhile, the Nasdaq had a wilder ride, dropping as much as 3.5% at the start, only to end the day 3.3% better.

President Biden’s speech spurred the reversal, in which he outlined additional sanctions against Russia. This included technology export blocks, which could limit Russia’s ability to advance its military and aerospace sectors. Additional sanctions were imposed on banks and those close to Putin.

Despite the reversal, stocks remain well below their highs. The S&P 500 is currently 9.06% off its high of January 3, 2022. The Nasdaq remains 15.79% off its high reached last year.

The persistent decline causes the Nasdaq to encroach on a bear market, which is defined as a decline of “20% or more from recent highs amid widespread pessimism and negative investor sentiment.”

In commodity markets, oil and gold both closed lower on Friday after recent gains. Meanwhile, the so-called “digital gold” Bitcoin, despite rising on Friday, has not proven to be a safe haven for investors with a 2.61% decline over the past seven days.

Personal expenses, PCE price

Personal spending supported stocks early on to help secure Friday’s rally.

Personal spending rose 2.1% in January, beating estimates of a 1.5% rise. This followed an upward-revised decline of 0.6% in December. Meanwhile, core PCE prices rose at a 0.5% pace, in line with estimates.

While the spend report was good, the reaction might be a little over the top from markets which are swinging wildly in these uncertain times. According to Allan Boomer, chief investment officer at Momentum Advisors, “the market is going to overreact to good news and bad news.”

So while it was encouraging to see spending beat expectations, even controlling for inflation, investors may be hanging on to straws more than they otherwise, given the heightened uncertainty in the world.

Revenue Summary

In short, profits had it all this week.

Coinbase (COIN) disappointed investors. The crypto exchange actually easily topped EPS and revenue estimates, but disappointment came when it said it expected “lower crypto asset volatility and asset prices.” of crypto,” as well as a drop in users transacting monthly and trading volume.

Meanwhile, Block (SQ) soared after earnings, up more than 25%. Block’s earnings likely had low expectations after disappointing reports from rivals PayPal (PYPL) and Affirm (AFRM). While other buy-it-now, pay-later (BNPL) services failed to inspire investors this quarter, Square’s acquisition of BNPL service Afterpay appears to have been a blockbuster buy after its bullish update. on the society. The acquisition was completed on January 31, so the acquisition had no influence on the financial report, but certainly had an influence on investor sentiment towards the report.

A while back I wrote about Super Apps and Affirm’s pursuit of becoming one through several new additions that haven’t really moved (or kept) the needle, and it looks like Block is about to to succeed where Affirm recently failed, spelling a bullish outlook as BNPL offers will soon be available directly within Square’s hugely popular CashApp product.

All in all, stocks ended the week mostly higher thanks to Friday’s rally. The S&P 500 rose 0.82% this week, while the Nasdaq rose 1.08%. The Russell outperformed the lot, up 1.46% and the Dow was the only loser of the major indices, down 0.06%.

About Chris McCarter

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