The three main Wall Street benchmarks had their best days in over a month on Tuesday, with the Nasdaq closing up 2.2%, as investors responded to positive earnings and dovish comments from two U.S. Federal Reserve officials on interest rate rises. The TSX also rose, although a pullback in energy shares as oil prices fell had the Canadian index underperforming the U.S market.
The gain in the tech-heavy Nasdaq came despite U.S. Treasury yields extending a recent surge and reaching a significant threshold: the yield on 10-year U.S. inflation-linked bonds broke above negative territory for the first time since March 2020, when the Federal Reserve announced its unprecedented stimulus response to the coronavirus pandemic.
A positive yield on Treasury Inflation-Protected Securities (TIPS) means an investor would break even on the Treasury securities in 10 years, after accounting for expected inflation. The 10-year TIPS yield rose to 0.005%. TIPS also are referred to as real yields because they subtract projected inflation from the nominal yield on Treasury securities.
The 30-year U.S. bond yield exceeded 3% for the first time since April 2019. Canadian bond yields tracked U.S. yields higher, with the five-year bond yield - which has a significant influence on fixed mortgage rates - hitting a fresh 11-year high of more than 2.7%.
“While the level is notable, it’s the speed with which conditions have changed that is truly remarkable,” commented Douglas Porter, chief economist with BMO, in a note. “Just one short year ago, these yields were still below 1%. The 176 basis point surge in five-year yields in the past year is the largest since the great tightening cycle of the mid 1990s. And more than 80% of that move has unfolded just since the start of 2022, as central bank messaging shifted in double-time.”
After markets closed, Global streaming giant Netflix Inc reported losing subscribers for the first time in more than a decade and predicted more contraction in the second quarter, a rare miss for a company that has been a reliable growth engine for investors. Netflix lost 200,000 subscribers in its first quarter, falling well short of its modest predictions that it would add 2.5 million subscribers. The company’s stock plunged 24% in after-market trading.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 140.41 points, or 0.6%, at 22,018.82. Last month, it touched a record closing high at 22,087.22.
The consumer discretionary sector was among the biggest gainers on the Toronto market, advancing 2.5%, while industrials rose 1.5% and technology ended 2.7% higher.
The energy group gave back some recent gains, falling 1.4%, while the materials group, which includes precious and base metals miners and fertilizer companies, lost 1.3%. Oil prices tumbled 5.2% after the International Monetary Fund cut its growth forecasts for the global economy and warned of higher inflation.
On Wall Street, Johnson & Johnson advanced 3.1% to a second record close in three sessions, as the drugmaker’s quarterly profit exceeded market expectations and it raised its dividend payout.
Of the first 49 companies in the S&P 500 index to report quarterly earnings, 79.6% have exceeded profit estimates, as per Refinitiv data. Typically, 66% beat estimates.
“It certainly feels like every earnings season, especially since March 2020, is more important than the next, but particularly given where we sit in the economic cycle, the Fed’s rate hike cycle, and the elevated inflation backdrop,” said Max Grinacoff, equity derivatives strategist at BNP Paribas.
International Business Machines Corp gained 2.4%, before ticking up a further 1.8% following its latest numbers report after market close.
St. Louis Federal Reserve Bank President James Bullard on Monday repeated his case for increasing the rates to 3.5% by the end of the year to slow a 40-year-high inflation. He also said he did not rule out a 75 basis points rate hike.
Stocks appeared to brush aside the remarks, and the main indexes rallied further in late afternoon trading after both Chicago Federal Reserve Bank President Charles Evans and Atlanta Federal Reserve Bank President Raphael Bostic offered more dovish comments.
The Dow Jones Industrial Average rose 499.51 points, or 1.45%, to 34,911.2, the S&P 500 gained 70.52 points, or 1.61%, to 4,462.21 and the Nasdaq Composite added 287.30 points, or 2.15%, to 13,619.66.
The advances were the most by all three since March 16.
Ten of the 11 major S&P subsectors were higher, led by consumer discretionary stocks. Among the best performers in the index were gaming companies, with Wynn Resorts Inc, Caesars Entertainment Inc and Penn National Gaming Inc gaining between 4.9% and 5.9%.
Energy stocks fell 1%.
This year’s rally in crude prices, which are still up around a third despite Tuesday’s declines, helped Halliburton Co post an 85% rise in first-quarter adjusted profit as demand for its services and equipment increased. However, the oilfield services firm’s shares were 0.8% lower, amid the wider slump in energy stocks.
Meanwhile, Twitter Inc declined 4.7%. More private equity firms have expressed interest in participating in a deal for the micro blogging site, according to reports.
Trading volume on U.S. exchanges was 10.53 billion shares, compared with the 11.67 billion average for the full session over the last 20 trading days. The S&P 500 posted 35 new 52-week highs and 11 new lows; the Nasdaq Composite recorded 70 new highs and 333 new lows.
Reuters, Globe staff
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