US tech stocks hit three-month high after upbeat data

US tech stocks hit their highest level in three months, supported by solid corporate earnings and positive economic data.

Wall Street’s benchmark S&P 500 index rose 1.6 per cent, with tech and consumer stocks leading the way. That helped recoup declines from the first two days of the week.

The Nasdaq Composite rose 2.6 per cent to its highest level since early May. That was helped along by a 9.2 per cent jump in shares of PayPal, which led a broader rally in the tech sector.

The payments group on Tuesday became the latest large tech group to report better than expected second-quarter earnings and also announced that activist investor Elliott Investment Management had amassed a $2bn stake in the company.

Investor sentiment was also buoyed by strong results from a survey of the US services sector. The Institute for Supply Management’s purchasing managers’ index suggested the sector expanded in July more quickly than the previous month, confounding expectations of a slowdown. The report was more upbeat than a similar survey of factory executives released earlier this week.

“Recent [ISM services] results, while below the red-hot tallies of the autumn and early winter, are nonetheless still quite solid on an historical basis, and the July increase appears at odds with predictions that the economy is either in recession now or very close to slipping into one,” said Joshua Shapiro, chief US economist at MFR consultancy.

Government bond markets erased their losses in afternoon trading having been under pressure earlier.

The yield on the two-year Treasury note, which is particularly sensitive to short-term policy expectations, rose as high as 3.19 per cent before falling back to 3.08 per cent, according to Tradeweb data, flat on the day. Yields rise when prices fall.

The yield on the benchmark 10-year note similarly slipped 0.03 percentage points to 2.7 per cent after rising earlier.

The swings highlight the uncertainty over the direction of monetary policy. They also come during the summer holiday season, when thin trading volumes often exacerbate volatility across financial markets.

Yields tumbled last week after the Fed hinted that the pace of interest rate increases could moderate after it announced it would raise benchmark borrowing costs by 0.75 percentage points for the second month in a row.

However, San Francisco Fed president Mary Daly said in an interview on Tuesday that the central bank was “nowhere near” done with its fight to cool inflation, which continues to run at 40-year highs.

In a separate interview, Chicago Fed president Charles Evans said a half- percentage point rate rise in September was likely, but a 0.75 percentage point increase “could also be OK”.

Richmond Fed president Tom Barkin repeated the message on Wednesday, emphasising that the Fed “will do what it takes” to bring inflation back to its 2 per cent target.