Stocks closed with sharp gains on Tuesday as more U.S. companies joined big banks in reporting earnings that beat forecasts, offering respite to investors worried about higher inflation and a tightening Fed denting the corporate bottomline.
The S&P 500 gained 2.8%, the highest close since June 9. The tech-heavy Nasdaq Composite added 3.1% and the S&P/TSX Composite index rose 1.84%, both marking their biggest one-day percentage gains since June 24.
“Earnings have come in better than lowered expectations,” said Paul Kim, CEO of Simplify Asset Management in New York. “So we’re not seeing the bite of tighter monetary policy and inflation impacting revenue as much as feared.”
Of the 48 S&P 500 companies that have reported earnings through Tuesday morning, 89.2% have topped expectations, according to Refinitiv data, compared with an 81% beat rate over the past four quarters.
In this earnings season, analysts expect aggregate year-on-year S&P 500 profit to grow 5.8%, down from the 6.8% estimate at the start of the quarter, according to Refinitiv data.
Shares of Halliburton rose 2.1% after the oilfield services provider posted a 41% increase in quarterly adjusted profit. Toymaker Hasbro Inc gained 0.7% after reporting quarterly profit ahead of expectations.
Truist Financial Corp also beat market estimates for quarterly profit, sending the bank’s shares up 2.6%.
Johnson & Johnson shares lost 1.5%, reversing earlier gains. The healthcare giant reported profit and sales that exceeded expectations but cut its earnings outlook for the year due to a soaring U.S. currency.
A strong U.S. dollar also weighed on shares of IT hardware and services company IBM Corp, which beat quarterly revenue expectations on Monday but warned the hit from forex for the year could be about $3.5 billion.
The U.S. dollar weakened for a third straight day on Tuesday as expectations grew for the European Central Bank to enact a bigger rate hike than expected this week.
A Reuters report that the ECB was weighing a 50-basis-point rate hike at its Thursday meeting, double the hike many market participants had priced in, helped put the euro on track for its biggest one-day percentage gain in nearly two months.
The U.S. dollar index fell 0.661%, with the euro up 0.81% at $1.0223.
“We are now seeing a subtle but meaningful shift in the outlook for trans-Atlantic monetary policy, and that’s proving a good thing for the euro,” said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.
The softer U.S. dollar Tuesday helped to support the heavyweight energy and materials sectors of the TSX, which rose 2.4% and 1.5%, respectively. West Texas Intermediate crude futures rose 1.59%, or $1.63, to $104.23 a barrel.
Still, despite the currency support from the weaker greenback, copper prices were lower on Tuesday. Worries about demand in top consumer China and elsewhere due to a growth slowdown were reinforced by rising inventories.
Benchmark copper on the London Metal Exchange were down 1.7% to $7,298 a tonne in afternoon trading, a drop of more than 30% since a record $10,845 a tonne in March.
Chinese cities have lifted COVID restrictions. But Japanese Bank Nomura said 41 Chinese cities were currently implementing full or partial lockdowns or some kind of district-based control measures, affecting 22.8% of the country’s gross domestic product.
China accounts for about half of global copper consumption estimated at around 25 million tonnes this year.
The S&P/TSX Composite Index overall rose 342.09 points, or 1.84%, at 18,937.71. The TSX financials sector rose 2.2%. The TSX Composite is now off 10.8% for the year.
Leading the main index were West Fraser Timber Co Ltd, up 14.4%, Interfor Corp, up 9%, and Bombardier Inc, higher by 8.6%. Reuters quoted unidentified sources as saying that private equity firm CVC Capital and wood panel manufacturer Kronospan have submitted a joint expression of interest to acquire Canadian lumber company West Fraser Timber Co., sending its stock soaring.
The Dow Jones Industrial Average rose 754.44 points, or 2.43%, to 31,827.05, the S&P 500 gained 105.84 points, or 2.76%, to 3,936.69 and the Nasdaq Composite added 353.10 points, or 3.11%, to 11,713.15.
Many investors cautioned that markets could once again retest their lows, especially if further earnings reports disappoint or if the U.S. Federal Reserve turns surprisingly hawkish.
“The macro picture hasn’t changed,” said Simplify’s Kim. “We still have falling earnings, high inflation pressures and a tightening Fed. So longer term, I don’t think this type of rally has staying power.”
U.S. bond yields rose on Tuesday as prices were pressured lower by upbeat sentiment toward equities, with the 10-year Treasury yield hovering near 3% throughout the session.
Volume on U.S. exchanges was 10.95 billion shares, compared with the 11.76 billion average for the full session over the last 20 trading days.
Advancing issues outnumbered declining ones on the NYSE by a 4.88-to-1 ratio and on the Nasdaq, a 3.40-to-1 ratio favored advancers.
The S&P 500 posted one new 52-week high and 30 new lows; the Nasdaq Composite recorded 31 new highs and 56 new lows.
On the TSX 207 issues rose and 30 fell as a 6.9-to-1 ratio favored advancers. There were 3 new highs and 2 new lows, with total volume of 149.5 million shares. The most heavily traded shares by volume were Athabasca Oil Corp, Baytex Energy Corp and Crescent Point Energy Corp.
Reuters, Globe staff
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