Tech megacaps powered a stock-market rebound, tempering data suggesting that while the Federal Reserve still has a path to a soft landing, the risk of a recession this year is very much alive.

After struggling for direction, the S&P 500 closed at the highest since early December. Wall Street also had to contend with a batch of corporate results. Tesla Inc. led gains in the Nasdaq 100 as Elon Musk teased potential for the carmaker to produce 2 million vehicles in 2023. Meantime, International Business Machines Corp. sank on disappointing cash flow.

U.S. gross domestic product expanded at a faster-than-forecast pace into the end of 2022, but there were signs of slowing underlying demand as the steepest rate hikes in decades threaten growth. The Fed is expected to boost rates by 25 basis points next week amid bets the central bank is approaching the end of its tightening cycle. Yet officials are signaling that rates will stay high through the rest of this year.

The economy continues to be very resilient in the face of rate hikes, but plenty of risks lie ahead, so “we wouldn’t be so quick to blow the all clear,” said Chris Zaccarelli at Independent Advisor Alliance.

“That said, this year’s stock-market rally is impressive and shouldn’t be ignored,” the firm’s chief investment officer added. “Unfortunately, the Fed is likely to start talking down the market again, as early as next week, so prepare for volatility. We may be in the eye of the hurricane and not completely out of the woods yet.”

To Chris Gaffney, president of world markets at TIAA Bank, the recent data show the Fed is doing a good job, “but there’s more work to be done.”

A team led by Deutsche Bank AG’s Binky Chadha is maintaining its view that the S&P 500 can rise to 4,500 by the end of the first quarter, 12 per cent above Wednesday’s close, before sliding amid an economic contraction. The benchmark is currently headed for its best January since 2019.

However, it appears many investors don’t have the appetite to chase the rally.

Some 35 per cent of clients in a recent JPMorgan Chase & Co. survey said they plan to add to stock holdings in the coming weeks. That’s a hair away from a 33 per cent reading in late November that marked an all-time low.

Investors fretting about the prospects for global earnings growth may want to brace for a long slog this year, and stiff headwinds to equities as a result. 

Analysts’ estimates for 2023 profits continue to fall, with major regions showing negative revision momentum, according to research from Bloomberg Intelligence’s Gina Martin Adams and Gillian Wolff. In the U.S., for example, sell-side analysts have lowered projections by more than half since September, while the outlook for emerging markets has slumped even more.

Corporate Highlights:

• Bed Bath & Beyond Inc. said it received a default notice from JPMorgan Chase & Co. after it failed to prepay an overadvance and satisfy certain creditor protections.
• American Airlines Group Inc. expects profit this year to exceed estimates following a slow start, as steady demand for air travel keeps an industry recovery going into 2023.
• Southwest Airlines Co.’s operations meltdown last month will lead to a first-quarter loss as the fallout extends into 2023 from a fiasco that led to thousands of canceled flights and prompted a federal probe into its operations.
• Lam Research Corp., one of the three biggest providers of chip-manufacturing equipment in the U.S., is cutting about 7 per cent of its workforce to reduce expenses in a declining market.
• Mastercard Inc. warned revenue growth would slow even faster than expected this quarter, stoking fears that inflation has put a damper on consumer spending.
• Comcast Corp. topped Wall Street profit estimates in the fourth quarter despite continuing to lose customers in its cable and broadband businesses.

Meantime, Thursday’s auction of seven-year Treasury notes ensured that January will be one of the best months ever for U.S. government debt auctions. The high demand reflects investor wagers that the Fed is nearing the end of its rate hikes as inflation comes down from its peak.

Traders also continued to keep an eye on the latest geopolitical developments.

The International Monetary Fund is exploring a multiyear aid package for Ukraine worth as much as US$16 billion to help cover the country’s needs and provide a catalyst for more international funding while Kyiv tries to repel Russian forces, according to people familiar with the matter.

Elsewhere, U.S. natural gas futures extended losses below US$3 amid mild winter weather that helped spark the worst selloff among the country’s commodities.

Key events:

• American Express, Charter Communications, Chevron, HCA Healthcare to report results Friday
• US personal income/spending, PCE deflator, University of Michigan consumer sentiment, pending home sales, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 2 per cent
• The Dow Jones Industrial Average rose 0.6 per cent
• The Stoxx Europe 600 rose 0.4 per cent
• The MSCI World index rose 0.9 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.2 per cent to US$1.0891
• The British pound was little changed at US$1.2412
• The Japanese yen fell 0.5 per cent to 130.23 per dollar

Cryptocurrencies

• Bitcoin fell 2.1 per cent to US$23,112.34
• Ether fell 0.6 per cent to US$1,608.75

Bonds

• The yield on 10-year Treasuries advanced five basis points to 3.49 per cent
• Germany’s 10-year yield advanced six basis points to 2.22 per cent
• Britain’s 10-year yield advanced seven basis points to 3.32 per cent

Commodities

• West Texas Intermediate crude rose 1.2 per cent to  US$81.10 a barrel
• Gold futures fell 0.6 per cent to US$1,946.90 an ounce