Wall Street rallied Tuesday as more reports pour in on how much profit companies made during the spring.
The Dow Jones Industrial Average rallied more than 700 points, or 2.2%, at 31,767, and the Nasdaq composite was 3% higher. The S&P 500 was 2.6% higher in midday trading, a day after an early 1% gain gave way to a loss.
Stocks have dropped roughly 20% so far this year on worries about rising interest rates and high inflation, which puts an even brighter spotlight than usual on how much profit companies are making. If earnings hold up, it would provide a major support for markets. But if CEOs warn about troubles ahead, another tumble may be on the way.
More types of companies are reporting how much they earned during the spring, broadening out from the banks that dominated the earliest part of the reporting season.
Toy company Hasbro jumped 2.9% after it reported stronger profit than analysts expected. Oilfield services provider Halliburton rose 0.9% after its profit and revenue topped forecasts. Health care giant Johnson & Johnson added 0.6% after it likewise beat expectations.
IBM, though, fell 6.5% even though it reported stronger revenue and earnings than expected. The company’s profit margins fell short of some analysts’ expectations amid concerns about how the dollar’s recent strength is undercutting the value of revenue made abroad in other currencies.
Crude oil prices eased a bit, which offered some relief across the market. So too, counterintuitively, may have a report that showed an extreme level of pessimism among investors.
Expectations for economic growth and profits have plunged, according to the latest results from Bank of America’s monthly survey of global fund managers. That has them sitting on their highest cash levels since 2001 and their lowest allocations to stocks since 2008.
“Full capitulation,” is how Michael Hartnett, chief investment strategist, called it in a a BofA Global Research report. Contrarian investors see such dire levels of pessimism as an encouraging signal that could presage better times ahead if everyone who was going to sell has already.
Given all those fears, though, big swings have become routine on Wall Street recently. The S&P 500 has been flip-flopping between weekly gains and losses over the last month, after a rough run where it dropped in 10 of 11 weeks. The swings have even hit hour to hour, with early morning gains quickly evaporating by the afternoon. On Monday, a 1% gain ended up as a 0.8% loss.
The Federal Reserve has already raised rates three times this year, and by increasing amounts each time. It will announce its next increase next week, and the only question among investors is whether it will go with another increase of 0.75 percentage points or a moster hike of a full point.
The yield on the two-year Treasury, which tends to track expectations for Fed action, rose to 3.18% from 3.17% late Monday. The 10-year yield rose to 3.02% from 2.96%.
In energy trading, benchmark US crude fell 0.4% to $99.07 per barrel. Brent crude, the international standard, slipped 0.2% to $106.08.