Markets: News  

By Joseph Adinolfi and William Watts

Dow component Goldman Sachs rallies after results

U.S. stocks finished higher for the second day in a row on Tuesday as investors celebrated another batch of robust corporate earnings reports.

How stocks performed

Major U.S. indexes pared post-open gains, but still finished sharply higher on Tuesday. One day earlier, the Dow rose 551 points, or 1.9%, while the S&P 500 jumped 2.7% and the Nasdaq Composite advanced 3.4%. Altogether, the S&P 500 has risen 4% from 3,577.03, its lowest closing level in two years, which it reached on Oct. 12.

What drove markets

Wall Street clinched a second day of gains as investors turned their attention to corporate results as the third-quarter earnings season begins in earnest this week.

"Corporate earnings are stealing the show and overshadowing recession concerns. Those same recession fears had meant that the bar was low heading into earnings, raising the likelihood of beating estimates," said Fiona Cincotta, senior financial markets analyst at City Index, in a note.

So far, 46 S&P 500 companies have reported third-quarter results. Of these companies, 70% have beaten profit estimates, and 63% have beaten revenue estimates, according to FactSet data.

Read: 100% probability of U.S. recession in coming year, according to Bloomberg Economics forecast model

Shares of Dow component Goldman Sachs Group Inc.(GS) rose after the financial services giant delivering well-received earnings reports Tuesday.

But stocks pared their gains heading into the afternoon as Treasury yields wavered and geopolitical risk reemerged, with Secretary of State Antony Blinken accusing China of accelerating plans to seize Taiwan.

"I think stocks are a little oversold, but when you see the 10-year bond sell off and yields start to pop above 4% stocks start to weaken," Farr said in a phone call with MarketWatch.

The yield on the 10-year Treasury note fell Tuesday, dropping 1.6 basis points to 3.996% from 4.012% on Monday.

Read: Why stock market investors should wait for the 10-year Treasury to 'blink'

Both U.S. stocks and bonds received an added boost earlier in the session from news the Bank of England would delay its bond sale program, a move that highlighted central banks' readiness to halt monetary tightening if needed. However, the central bank quickly dismissed the report as "inaccurate."

Still, some analysts remained skeptical about the rebound in stocks. Jonathan Krinsky, chief market technician at BTIG, noted that although the Nasdaq-100 gained more than 3% in the previous session, it had remained within Friday's range.

"That qualifies as an 'inside day'. A 3% inside day is quite rare, and has happened just 9 other times when below its 200 DMA since inception in 1985. While stats, particularly those with small sample sizes, should never be used in isolation, we think the recent action is telling and has tended to occur in the midst of bear markets more than the start of new bulls," said Krinsky.

"We don't think we are at the final end of this bear market, and therefore would be inclined to fade this rally."

Mark Newton, technical strategist at Fundstrat, said in a note to clients that the recent market strength hasn't been enough to break either the one or two-month downtrend in stocks -- and that Treasury yields seemed likely to break higher still.

"Overall, the ability to exceed early month peaks at 3825 [for the S&P 500] will be an important first step which would help to add conviction on rallies. At present, I suspect indices could be in for some additional volatile trading over the next week before officially bottoming," Newton said.

Read:Fund managers 'scream capitulation' as cash levels rise to highest in 21 years, Bank of America says

In U.S. economic data, the September industrial output rose 0.4% after a revised 0.1% fall the previous month, while the National Association of Home Builders said its monthly confidence fell 8 points to 38 in October -- its 10th straight monthly decline.

As far as talk from Federal Reserve officials went, Atlanta Fed President Raphael Bostic said he still sees a lot of shuffle and churn in the U.S. labor market. Meanwhile, Minneapolis Fed President Neel Kashkari will deliver remarks at 5:30 p.m.

Earnings Outlook:Snapchat is about to play the canary in social media's coal mine

Companies in focus

--Jamie Chisholm contributed reporting

-Joseph Adinolfi

(END) Dow Jones Newswires

October 18, 2022 16:49 ET (20:49 GMT)

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