US stocks rose on Tuesday as traders assessed a slew of corporate earnings and weighed risks to economic growth from the Federal Reserve raising interest rates to combat inflation. Treasuries rallied.
(Bloomberg) — US stocks rose on Tuesday as traders assessed a slew of corporate earnings and weighed risks to economic growth from the Federal Reserve raising interest rates to combat inflation. Treasuries rallied.
The S&P 500 and the Nasdaq 100 rose more than 1%. Gains in Apple Inc. shares buoyed both benchmarks, as analysts expect the price hike the firm announced for some of its services to be a positive. A report that Elon Musk pledged to close the acquisition of Twitter Inc. by Friday pushed the shares of the company to their highest level this year.
US Treasury yields fell, with the 10-year rate dropping to around 4.09%. The dollar fell after data on Tuesday showed that home-price growth in the US slowed as high borrowing costs sapped demand.
Among companies reporting Tuesday, The Coca-Cola Co., General Motors Co. and United Parcel Service Inc. rose after beating analysts’ earnings estimates, while General Electric Co. dipped after falling short. Alphabet Inc., Microsoft Corp. and Visa Inc. are among major companies still reporting today. This week’s big-tech earnings will show investors whether companies that are among the key profit-growth engines for the S&P 500 can deliver profits with inflation crimping margins.
About a quarter of S&P 500 companies have reported earnings so far, with more than half outperforming estimates. Some investors are still concerned the effects of a slowing economy will be seen further down the line, especially after economic data this week showed that Fed tightening has already started to weigh on the economy. While the central bank is still set to raise interest rates next week, investors are starting to speculate that it may be approaching the end of its aggressive tightening campaign.
“The big thing is what we’re seeing from earnings, and as we get more and more, the market is coming around to this sense that the outlooks aren’t nearly as bad as some had feared,” Shawn Cruz, head trading strategist at TD Ameritrade, said in an interview. “The market was actually bracing itself for more pessimistic tones from companies as we got through earnings and it’s not coming out that way right now. It’s mixed too, but even being mixed is ahead of expectations.”
Still, any potential positive earnings surprise is unlikely to lead to a sustained rallied in risk assets, said Bipan Rai, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce. If it does, “then it would work against what the Fed is trying to engender, which are tighter financial conditions to suppress aggregate demand,” Rai said.
Economic Outlook
Despite consumer confidence falling over concerns about the broader economic outlook, some investors still hope the Fed can avoid triggering a steep recession.
“The risk of a US recession is uncomfortably high. I don’t think it’s a done deal. I don’t think it’s 100%,” Mohamed El-Erian, chief economic adviser at Allianz SE, told Bloomberg Television’s The Open on Tuesday. “The Fed can hopefully still find a way around this.”
Analysts are also expecting a jumbo hike of 75 basis points from the ECB on Thursday, even as many economists now reckon a recession has begun in the euro region. German business confidence improved in October, data showed Tuesday, though remained at depressed levels as Europe’s largest economy heads into a challenging winter.
Elsewhere in markets, the British pound gained as Rishi Sunak formally took over as UK prime minister on Tuesday, vowing to “fix” the mistakes made by his predecessor, Liz Truss.
Key events this week:
- Earnings due this week include: Apple, Microsoft, Exxon Mobil, Ford Motor, Credit Suisse, Airbus, Alphabet, Amazon, Bank of China, Boeing, Caterpillar, Cnooc, Intel, McDonald’s, Mercedes-Benz, Merck, Samsung Electronics, Shell, Vale, Visa, Volkswagen
- Bank of Canada rate decision, Wednesday
- ECB rate decision, Thursday
- US GDP, durable goods orders, initial jobless claims, Thursday
- Bank of Japan policy decision, Friday
- US personal income, personal spending, pending home sales, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 1.4% as of 2:23 p.m. New York time
- The Nasdaq 100 rose 1.8%
- The Dow Jones Industrial Average rose 0.9%
- The MSCI World index rose 0.8%
Currencies
- The Bloomberg Dollar Spot Index fell 0.8%
- The euro rose 0.9% to $0.9963
- The British pound rose 1.8% to $1.1479
- The Japanese yen rose 0.7% to 147.90 per dollar
Cryptocurrencies
- Bitcoin rose 4% to $20,151.75
- Ether rose 9.5% to $1,479.84
Bonds
- The yield on 10-year Treasuries declined 15 basis points to 4.09%
- Germany’s 10-year yield declined 16 basis points to 2.17%
- Britain’s 10-year yield declined 11 basis points to 3.64%
Commodities
- West Texas Intermediate crude rose 0.6% to $85.10 a barrel
- Gold futures rose 0.4% to $1,661 an ounce
–With assistance from Emily Graffeo.
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