Source: Wind
U.S. stocks rallied on Tuesday, with traders coming through one of the busiest weeks of the corporate earnings season and keeping a close eye on the latest move in interest rates.
The Dow Jones Industrial Average rose 499.51 points, or 1.45%, to close at 34,911.20. The S&P 500 rose 1.61% to 4,462.21; the Nasdaq Composite added 2.15% to 13,619.66.
Stocks have been under pressure recently, with the S&P 500 falling for two weeks in a row, but investors increased their holdings of risk assets on Tuesday. The Russell 2000 index of large and mid-cap stocks rose 2.1%.
Energy markets may have boosted traders’ sentiment on Tuesday, with oil and natural gas prices both falling sharply, possibly providing “some relief” for investors worried about inflation.
“Sentiment and positioning are too pessimistic right now, in our view. Although we have slightly reduced our record allocation to equities,” JPMorgan’s Marko Kolanovic said in a note to clients. There is a rebound, especially in small caps and high beta markets.”
Bank stocks outperformed as interest rates rose and banks reported earnings. Shares of Citizens Financial rose 6.8% on Tuesday morning after it reported first-quarter revenue and net profit that beat expectations. JPMorgan shares rose more than 2%.
Some heavyweights in the tech and media sectors also rose on Tuesday. Shares of Disney and Netflix rose 3.2%. Microsoft and Alphabet rose 1.7% and 1.8%, respectively. Travel stocks also performed well. Shares of American Airlines rose more than 5% and United Airlines rose 4.5%.
Andrew Smith, chief investment strategist at Delos Capital Advisors, said the rally in stocks despite further hikes in interest rates could be a sign that investors shouldn’t believe Tuesday’s rally.
“I think a lot of it has to do with the outperformance of those defensive stocks, the market just has a rotation. But it’s not normal for tech stocks to go up so much today and real yields to go even higher,” Smith said.
The earnings report drove volatility in individual stocks on Tuesday. Johnson & Johnson reported mixed quarterly results, with earnings per share beating estimates and revenue falling short of analysts’ expectations. However, its shares rose 3%, boosting the Dow. Shares of Lockheed Martin fell 1.6% after the company reported mixed results.
On the data front, housing starts and building permits were higher than expected in March. That appeared to boost homebuilder stocks, with DR Horton up 3.9%. “The economic data has been pretty good so far, so despite rising recession fears and growing voices of slowing growth, there is some underlying momentum,” said Angelo Kourkafas, investment strategist at Edward Jones.
Traders also kept a close eye on the bond market, with the 10-year U.S. Treasury yield hitting 2.94%, its highest level since 2018. Expectations for Fed rate hikes have risen sharply in recent months, though the central bank has said it will rely on data when deciding how to raise rates throughout the year.
Fears about the Fed’s next move have also sparked wild swings in bond markets, which appear to have weighed on stocks in recent weeks. St. Louis Fed President Bullard said recently that the Fed’s actions “have reflected quite a number of factors.”
Editor/Jeffrey
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