[New York Stock Market] MS, Meta Spark AI Optimism Rally... Treasury Yields Rise Despite Besant's Rate Cut Push

Tech Stocks Rise on Surprise Earnings from MS and Meta
Hassett: "Progress in Tariff Negotiations... New Developments Expected Today"
Optimism Grows Over Trade Talks
U.S. Treasury Urges Fed to Cut Rates
Market Expects Rate Hold, Treasury Yields Climb
Weekly Jobless Claims Surge Unexpectedly

All three major indices on the New York Stock Exchange closed higher on May 1 (local time). Microsoft (MS) and Meta, the parent company of Facebook, reported "surprise earnings" the previous day, fueling optimism about AI-driven growth. Although U.S. Treasury Secretary Scott Besant urged the Federal Reserve (Fed) to cut interest rates, U.S. Treasury yields actually rose as the market placed a higher probability on a rate hold.

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On this day, the Dow Jones Industrial Average, which focuses on blue-chip stocks, closed at 40,752.96, up 83.6 points (0.21%) from the previous trading day. The S&P 500, which centers on large-cap stocks, rose by 35.08 points (0.63%) to 5,604.14, while the tech-heavy Nasdaq climbed 264.4 points (1.52%) to 17,710.74.

Strong earnings reports from big tech companies boosted investor sentiment. The previous day, MS posted results that exceeded market expectations, driven by its cloud business including Azure, and also presented an optimistic outlook. Meta also reported results that beat expectations, citing improved advertising efficiency through AI. Meta CEO Mark Zuckerberg said during a conference call after the earnings release, "The company is performing very well," and added, "We are well positioned to navigate macroeconomic uncertainties," alleviating concerns about a recession triggered by tariffs and the profitability of AI.

Jed Ellerbroek, portfolio manager at Argent Capital Management, said, "There are very few stocks immune to the impact of President Donald Trump's tariffs and trade wars, but AI is much less affected than investors currently think," adding, "We are at the very early stage of a steep growth curve, and the same goes for AI infrastructure."

Expectations are also rising for progress in trade negotiations between the United States and other countries. Kevin Hassett, Chair of the White House National Economic Council (NEC), stated that the Trump administration is making progress in tariff negotiations and that new developments are expected to be announced on this day.

Georgios Leontaris, EMEA Chief Investment Officer (CIO) at HSBC Global Private Banking, said, "So far, big tech companies’ earnings have provided relief and are supporting the stock market outlook," but also noted, "However, debates clearly continue over whether the tariff controversy has peaked, aside from earnings."

However, the stock market gave back some early gains as employment data came in weaker than expected. According to the U.S. Department of Labor, new jobless claims for the week of April 20?26 totaled 241,000, the highest since late February. This was due to a sharp increase in claims during spring break week in New York State. Continuing jobless claims?those who have filed for at least two consecutive weeks?also rose to 1,916,000 for the week of April 13?19, the highest in three and a half years since November 2021. This indicates that it is taking longer for the unemployed to find new jobs.

The manufacturing sector remained in contraction. According to the Institute for Supply Management (ISM), the Manufacturing Purchasing Managers’ Index (PMI) for April was 48.7. A reading above 50 indicates expansion, while below 50 signals contraction. Last month's PMI was higher than the forecast (48), but below the previous month’s figure (49), indicating a deepening contraction in the sector.

The latest employment and manufacturing data were released as concerns about a recession grow, with U.S. economic growth turning negative in the first quarter of President Trump's second term. According to the U.S. Department of Commerce the previous day, first-quarter gross domestic product (GDP) growth was -0.3% annualized from the previous quarter. This is the first negative growth in three years since the first quarter of 2022 (-1.0%), when the economy was hit hard by the COVID-19 pandemic. The negative growth was attributed to companies stockpiling imports ahead of tariff implementation and a decrease in government spending, which could further raise concerns about a recession in the U.S. economy going forward.

By stock, MS, which reported strong earnings the previous day, surged 7.63%. Meta jumped 4.23%. Ahead of their earnings announcements after the close, Apple and Amazon rose 0.39% and 3.13%, respectively. Nvidia climbed 2.47% on news that the U.S. government is considering easing sales restrictions to the United Arab Emirates (UAE). In contrast, General Motors (GM) fell 0.42% after lowering its annual profit outlook due to the impact of auto tariffs. McDonald’s dropped 1.88% as its first-quarter sales fell short of market expectations.

U.S. Treasury yields rose as investors lowered their expectations for a rate cut. The yield on the 10-year U.S. Treasury, the global benchmark for bond yields, rose 3 basis points (1bp=0.01 percentage point) from the previous session to 4.20%. The yield on the 2-year Treasury, which is sensitive to monetary policy, jumped 7 basis points to 3.69%.

On this day, Secretary Besant urged the Fed to cut rates, noting that the 2-year Treasury yield is below the federal funds rate (4.25?4.5% per year). The 2-year Treasury yield typically responds sensitively to Fed monetary policy. Secretary Besant argued, "The fact that the 2-year yield is currently below the federal funds rate is a signal that the market believes the Fed should cut rates." However, as the market has effectively priced in a rate hold by the Fed this month, Treasury yields have actually risen.