(Bloomberg) — The world’s largest technology companies soared in late trading as stellar results from Microsoft Corp. and Google’s parent Alphabet Inc. fueled confidence in the Wall Street’s most-influential group.

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A $250 billion exchange-traded fund tracking the Nasdaq 100 (ticker: QQQ) climbed almost 1.5% after the close of regular trading. In a sigh of relief to investors worried about lofty valuations of the sector that has powered the bull market, Alphabet crushed sales estimates and announced a dividend. Its fellow megacap Microsoft also beat forecasts, lifted by corporate demand for the software maker’s cloud and artificial-intelligence offerings.

The late rebound came after the market got rattled by data that showed exactly what investors did not want to hear — a sharp economic slowdown and stubborn inflation. Gross domestic product increased at a 1.6% annualized rate, trailing all forecasts. A closely watched measure of underlying inflation advanced at a greater-than-expected 3.7% clip.

“The recent GDP reading from the US was bleaker than expected, and didn’t lend itself well to growth-stock sympathism,” said Sophie Lund-Yates at Hargreaves Lansdown. “To that end, the market’s reaction to these results mean more than in usual times.”

Investors have shown they are excited about the prospects of AI — but want tech companies to continue to focus on revenue and profit in the meantime.

Like other big techs, Alphabet has been plowing money into developing AI, a strategy that has helped drive demand for its cloud services. Google is a distant third in the cloud-computing market, trailing Amazon.com Inc. and Microsoft, but the company’s prowess in AI could help it close the gap.

Meantime, Microsoft has been infusing its entire product line with AI technology from partner OpenAI. The bet is starting to pay off, with some customers adding AI tools that summarize documents and generate new content to their Office productivity software or signing up for Azure cloud subscriptions with OpenAI products.

“Overall, both prints indicate that the innovation economy continues to benefit from heightened corporate spending and a strong consumer,” said Tejas Dessai at Global X ETFs.

The S&P 500 trimmed most of its losses ahead of the close of regular trading, buoyed by gains in two other heavyweights: Nvidia Corp. and Tesla Inc. Meantime, Treasuries sold off, with yields hitting fresh 2024 highs as the economic figures revived the “stagflation” chatter — bringing more uncertainty to the path of Federal Reserve policy. Swap traders pushed back the timing of the first rate cut to December.

“This report was the worst of both worlds: economic growth is slowing and inflationary pressures are persisting,” said Chris Zaccarelli at Independent Advisor Alliance. “The Fed wants to see inflation start coming down in a persistent manner, but the market wants to see economic growth and corporate profits increasing.”

The latest economic data must harden the tone from the Fed next week some, said Krishna Guha at Evercore. “The Fed still goes into a holding pattern circling the airport until it gets a better read on forward inflation dynamics,” he said.

“Stagflation chatter will surely pick up in the wake of these figures, but we’re less concerned with such an outcome as long as the labor market remains so strong,” said Ian Lyngen at BMO Capital Markets.

Corporate Highlights:

American Airlines Group Inc. expects a return to profit heading into the busy summer travel season after bad weather and delays linked to air traffic congestion weighed on the carrier’s early-year results.
Southwest Airlines Co. is slowing growth, ending service at four airports and offering voluntary leaves to address “significant challenges” stemming in part from reduced deliveries of Boeing Co. planes.
Airbus SE will further increase production of its advanced A350 widebody jet as the planemaker benefits from surging demand for long-distance travel and the crisis engulfing its arch-rival Boeing Co.
Royal Caribbean Cruises Ltd. boosted its full-year profit forecast as demand for cruises continued to surge, prompting record price hikes.
Caterpillar Inc. reported first-quarter results that showed machinery sales slipping from a year earlier and warned that the trend is expected to continue in its second quarter.
Comcast Corp. reported a steeper-than-expected loss of internet subscribers.
International Business Machines Corp.’s weak consulting unit sales disappointed investors, overshadowing its acquisition of software firm HashiCorp Inc.
Ford Motor Co., rapidly retooling its electric vehicle strategy in a decelerating market for plug-ins, posted first-quarter results that beat expectations on strong sales of work trucks.
Nasdaq Inc.’s profit fell the most in 14 years as firms continue to wait for the economy to stabilize before going public.
Merck & Co. raised its annual profit and revenue forecast as the blockbuster cancer drug Keytruda continued to dominate the treatment landscape.
Harley-Davidson Inc.’s first-quarter revenue beat estimates despite high borrowing costs and tighter consumer budgets.
First Citizens BancShares Inc., which scooped up Silicon Valley Bank after the lender failed last year, lifted its guidance for lending income for 2024.
Hertz Global Holdings Inc. reported a loss that was nearly three times worse than analysts expected as it accelerated sales of electric vehicles to reduce its fleet of Tesla Inc. models that have weighed on profits for the past year.

Key events this week:

Japan rate decision, Tokyo CPI, inflation and GDP forecasts, Friday
US personal income and spending, PCE deflator, University of Michigan consumer sentiment, Friday
Exxon Mobil, Chevron earnings, Friday

Some of the main moves in markets:

Stocks

The S&P 500 fell 0.5% as of 4 p.m. New York time
The Nasdaq 100 fell 0.5%
The Dow Jones Industrial Average fell 1%
The MSCI World index fell 0.5%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro rose 0.3% to $1.0729
The British pound rose 0.4% to $1.2513
The Japanese yen fell 0.2% to 155.63 per dollar

Cryptocurrencies

Bitcoin rose 1% to $64,705.41
Ether rose 1% to $3,161.87

Bonds

The yield on 10-year Treasuries advanced six basis points to 4.70%
Germany’s 10-year yield advanced four basis points to 2.63%
Britain’s 10-year yield advanced three basis points to 4.36%

Commodities

West Texas Intermediate crude rose 1.2% to $83.77 a barrel
Spot gold rose 0.7% to $2,332.94 an ounce

This story was produced with the assistance of Bloomberg Automation.

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