Stocks rallied Tuesday, with the market resuming a bounce from last
month’s lows, as traders bet on strong corporate earnings reports and
wagered that markets have found a bottom.
The Dow Jones Industrial Average jumped 754.44 points, or 2.43%, to
31,827.05 — closing near the highs of the session as gains accelerated
in the final hour of trading. The S&P 500 gained 2.76% to 3,936.69.
The Nasdaq Composite rose 3.11% to 11,713.15.
All three major averages are above their 50-day moving averages for
the first time since April. The broader market index has gained almost
7.4% off its June 16 closing low.
Investors are betting that stocks have reached a bottom after their
steep declines this year, and as the latest round of earnings reports
showed businesses are working through economic pressures better than
feared in the second quarter.
“Both investors and the companies were expecting hot inflation, so
companies talking about hot inflation having happened in that second
quarter was not a surprise at all,” said Kim Forrest, founder, and
chief investment officer at Bokeh Capital Partners. “What was a
surprise was that they were able to manage through it well.”
Investor sentiment has worsened to a point that some on Wall Street
believe markets are set up for a relief rally ahead. Investors’ panic
may have teed up a fantastic buying opportunity, according to a Bank
of America survey of professional investors on Tuesday. Indeed, survey
participants’ bearishness suggests that the sellers are washed out,
and stocks may rise from here.
The Bank of America survey found that the allocation to stocks in
portfolios is at its lowest since October 2008, one month after the
collapse of Lehman Brothers, while cash holdings are the highest since
2001.
“Fundamentals poor but sentiment says stocks/credit rally in coming
weeks,” wrote Bank of America’s chief investment strategist Michael
Hartnett.
A pullback in the dollar aided the rally. This was particularly the
case for shares of tech companies with large portions of foreign sales
that are taking earnings hits from the impact of the strong greenback
this year.
Still, some analysts continued to recommend investors prepare for more
losses ahead.
″[While] I acknowledge sentiment is bad and we could see a large,
tactical rally, I am currently more concerned about protecting
downside than missing upside, in the aggregate,” Wedbush analyst Kevin
Merritt wrote in a Tuesday note.
Meanwhile, stocks absorbed a weaker-than-expected print in U.S.
housing starts, which fell 2% in June to a seasonally adjusted annual
rate of 1.559 million units.
All sectors in the S&P 500 were higher Tuesday. Communication services
and industrials led the gains, rising more than 3%.
Robust earnings
Solid earnings reports boosted the shares of many companies, even as a
stronger dollar weighed on the results of others.
Bank stocks outperformed with shares of Trust Financial adding more
than 2% and Citizens Financial Group rising nearly 2% on the back of
strong results. Goldman Sachs rose about 5.6%. Bank of America and
Wells Fargo advanced roughly 3.4% and 4.2%, respectively.
Meanwhile, shares of Halliburton climbed 2.1% as sharply rising oil
prices this year helped lift profits for the oilfield services company
in its most recent quarter.
Hasbro reported earnings per share that beat analyst expectations,
though the toymaker’s revenue for the previous quarter came in a tad
below expectations, according to consensus estimates from Refinitiv.
Shares gained 0.7%.
Shares of IBM fell nearly 5.3% after the tech company lowered its
forecast for cash flow, with IBM finance chief Jim Kavanaugh citing
the U.S. dollar and a suspension of business in Russia. Still, the
company reported results that beat Wall Street’s earnings and revenue
estimates.
Johnson & Johnson shares declined about 1.5% after the pharmaceutical
giant blamed a stronger dollar while cutting its full-year revenue and
profit guidance. The company reported better-than-expected top and
bottom line results.
As of Tuesday morning, roughly 9% of S&P 500 companies have reported
calendar second-quarter earnings. Of those, about two-thirds have
beaten analyst expectations, FactSet data shows.
Shares of Netflix popped 5.6% ahead of the streaming company’s
earnings report scheduled for after the close. Later in the week,
Tesla, United Airlines, American Airlines, Snap, Twitter, and Verizon
are among those scheduled to report.
“Trading is likely to remain very choppy, with more bear market
rallies, in the months ahead,” Wolfe Research’s Chris Senyek wrote in
a Tuesday note.