US stocks rise following solid earnings reports

US

A woman wearing a face mask walks past a bank’s electronic card showing the Hong Kong stock index in Hong Kong on Wednesday, Aug.3, 2022. Asian stock markets rose on Wednesday as traders watched for signs that trade it could be interrupted by US-China tensions due to the visit of an American legislator to Taiwan. (Photo AP / Kin Cheung)

AP

Wall Street shares closed higher on Wednesday as investors welcomed encouraging economic data and quarterly earnings reports from large companies, including Starbucks.

The S&P 500 was up 1.6% to a nearly 2-month high, while the Nasdaq gained 2.6%. Both indices more than made up for losses earlier in the week. The Dow Jones Industrial Average was up 1.3% and the Russell 2000 index of smaller companies closed up 1.4%.

Tech companies, resellers and communications companies were some of the biggest winners. Only shares in the energy sector fell, dragged down by the drop in oil prices.

Investors cheered a report on the services sector, which makes up the bulk of the US economy. The sector grew faster than expected in July, according to the Institute for Supply Management. A separate report showed that US orders for durable and large goods rose more-than-expected in June.

Some weak recent data on the economy have heightened speculation that the spike for inflation and aggressive Federal Reserve rate hikes may be near or past. The weak data, however, also shows the risk of a recession as the Fed puts the brakes on the economy.

That’s why Wednesday’s more positive economic reports helped put traders in a buying mood.

“This gives people more evidence that this economy is lurking,” said Jeff Buchbinder, equity strategist for LPL Financial. “At this point, we have a combination of evidence that inflation is going down.”

The S&P 500 was up 63.98 points to 4,155.17. It was down nearly 1% for the week heading into Wednesday. It is now up 0.6% for the week.

The Dow gained 416.33 points to 32,812.50. The Nasdaq added 319.40 points to finish at 12,668.16. The Russell 2000 collected 26.48 points at 1,908.93.

The 10-year Treasury yield fell to 2.71% from 2.73% at the end of Tuesday.

The bumpy start of the S&P 500 this week follows its best month since late 2020. July was a rare winning period for the market, which this year struggled with concerns about higher inflation in 40 years and for the Federal Reserve’s interest rate hike to combat it.

Earnings remain in focus this week as investors analyze the latest results and company statements to better understand how inflation is affecting businesses and consumers.

The CVS pharmacy chain grew 6.3% after reporting solid financial results and increasing its profit forecast for the year. Starbucks was up 4.3% after also reporting solid financial results. Nearly three-quarters of the companies within the S&P 500 benchmark reported earnings for the last quarter, and the results mostly exceeded analysts’ forecasts.

Several companies, however, have slipped between disappointing results. Taco Bell owner Yum Brands fell 1.9% following a weak earnings report and online dating services firm Match Group plummeted 17.6% after providing investors with a financial forecast weak.

PayPal jumped 9.2% on a report that activist investor Elliott Management has acquired a large stake in the payment company.

Robinhood Markets, whose stock trading app helped bring a new generation of investors to the market, rose 11.7% after the announcement that it is cutting nearly a quarter of its workforce. The collapse in cryptocurrency prices and a turbulent stock market have kept more customers away from his app.

Oil prices fell following OPEC’s decision to increase production in September at a much slower pace than in previous months. US crude fell 4% to $ 90.66 a barrel, while Brent crude, the international standard, fell 3.7% to $ 96.78 a barrel.

Falling oil prices weighed on energy stocks. Hess fell 3.6%

Markets are also looking at potential economic fallout from China following US House Speaker Nancy Pelosi’s visit to Taiwan. China claims Taiwan’s self-government as part of its territory and has banned the import of Taiwanese citrus fruits and frozen fish in retaliation for Pelosi’s visit. But it has avoided disrupting the flow of computer chips and other industrial goods, a step that could rock the global economy.

The upcoming labor market data could help investors determine how the Federal Reserve will move forward with its interest rate policy, which has been aggressive in an effort to tame inflation. The U.S. jobless claim numbers for last week will be released Thursday, and the government will release its July job report on Friday.

“Expectations for Fed rate hikes may have gotten a little too aggressive,” Buchbinder said. “We don’t know if we will have a break by the end of the year, but there is a good chance we will get a signal for a break by the end of the year.”

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