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Wall St soars on Microsoft, Alphabet earnings as Fed decision looms

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  • Results Microsoft and Alphabet lead to rally in megacap shares
  • T-Mobile up after increase in subscriber growth forecast
  • Fed policy decision expected at 2 p.m. ET
  • Indices: Dow 0.39%, S&P 1.47%, Nasdaq 2.72%

July 27 (Reuters) – The tech-heavy Nasdaq rose nearly 3% on Wednesday, pushing Wall Street’s major indices higher as optimistic quarterly reports from Microsoft and Alphabet boosted sentiment ahead of a key decision on US interest rates later on the day.

Investors widely expect the US central bank to raise interest rates an additional 75 basis points later on Wednesday, with the focus likely shifting to the extent to which policymakers have registered signs of an economic slowdown.

Money market traders were even betting on a one in four chance that the Fed would surprise the markets with a larger 1 percentage point increase, according to CME Group’s Fedwatch tool.

The decision is expected at 2 p.m. ET (1800 GMT), followed by a press conference by Federal Reserve Chairman Jerome Powell half an hour later, where he is likely to expand on how the central bank sees the recent economic environment.

“There has to be a balancing act, if they do too much or too little it’s going to hurt, so they’re in a tough position,” said Andre Bakhos, director of New Vines Capital.

“The key is how it’s said and how they give color to what’s out there in the world, from the Fed’s perspective.”

Microsoft Corp (MSFT.O) climbed 5% after forecasting double-digit revenue growth in demand for cloud computing services this fiscal year.

Alphabet Inc (GOOGL.O) Added 7.3% as better-than-expected sales of Google search ads alleviated concerns about a slowing ad market.

The S&P 500 Communications Services Index (.SPLRCL) added 4.3%, rising for the first time in five days and leading to sector gains. Tech stocks (.SPLRCT) up 3%.

The results led to a rally of high-growth stocks.

Meta Platforms Inc (META.O) 5.5% higher than quarterly report after markets close, as shares of Apple Inc (AAPL.O) increased by 1.7% and that of Amazon.com Inc (AMZN.O) gained 4.4% ahead of their Thursday results.

Megacap growth stocks took a beating this year as the Federal Reserve aggressively raised interest rates to curb decades-long inflation. Future cash flows on which the valuation of these companies is based are heavily discounted as interest rates rise.

At 12:37 p.m. ET, the Dow Jones Industrial Average (.DJI) rose 123.91 points, or 0.39%, to 31,885.45, the S&P 500 (.SPX) rose 57.50 points, or 1.47%, to 3,978.55, and the Nasdaq Composite (.IXIC) rose 314.00 points, or 2.72%, to 11,876.57.

PayPal Holdings Inc (PYPL.O) rose 11.4% after a report said activist investor Elliott Investment Management was building a stake in the fintech giant.

T-Mobile US Inc (TMUS.O) Added 4.1% after raising its subscriber growth forecast for the second time this year and surpassing quarterly earnings expectations.

The number of emerging issues outperformed the pastures by a 2.77-to-1 ratio on the NYSE and a 2.11-to-1 ratio on the Nasdaq.

The S&P index recorded a new 52-week high and 30 new lows, while the Nasdaq recorded 39 new highs and 78 new lows.

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