Dow rises closer to record on good start to corporate earnings season


U.S. stocks rallied closer to record levels Tuesday, as investors cheered a raft of largely upbeat corporate earnings reports, while mulling the implications of a partial U.S.-China trade deal announced last Friday and the possibility of a breakthrough in Brexit negotiations.

How are the major benchmarks faring?

The Dow Jones Industrial Average 

DJIA, +0.96%

was up 276 points, or 1.0%, to 27,063 Tuesday afternoon, while the S&P 500 index

SPX, +1.07%

  gained 32 points, or 1.0%, to 2,998. The Nasdaq Composite index

COMP, +1.27%

was up 103 points, or 1.3%, to 8,151.

The S&P 500 was about 1% below its record close of 3,025.86 set on July 26, while the Dow Jones Industrial Average was around 1.2% below its record finish of 27,359.16 set on July 15, and the Nasdaq Composite was around 2.3% away from its record close of 8,330.21 scored on July 26.

The Dow edged 29.23 points lower on Monday to end at 26,787.36, a loss of 0.1%. The S&P 500 closed 4.12 points lower, down 0.1%, at 2,966.15, while the Nasdaq Composite  lost 8.39 points, or 0.1%, to finish at 8,048.65.

Read: 5 prominent U.S. companies are most at fault for the earnings recession

What’s driving the market?

The third-quarter U.S. corporate earnings reporting season kicked off Tuesday with results from the nation’s largest banks, reflecting a relatively healthy U.S. consumer and a more wary business sector.

Shares of JPMorgan Chase & Co.

JPM, +3.17%

 rose after reporting revenue and earnings that rose more than expected on the back of its consumer banking division, while Wells Fargo & Co.

WFC, +1.95%

was also up after it reported a surprise increase in revenue, though its third-quarter profits fell more than expected.

Citigroup Inc.

C, +1.89%

shares gained after reporting quarterly sales and profits that beat expectations, while Goldman Sachs Group Inc.

GS, +0.33%

GS, +0.33%

reported a steep 26% decline in profit from the year ago period, reflecting weakness in the mergers and acquisitions market and debt and equity underwriting.

UnitedHealth Group Inc.

UNH, +8.14%

 provided Tuesday’s most impressive earnings release, after earnings and revenue came in above expectations and after the health-care services company raised its full-year outlook.

“First the fears with China have been alleviated, now it looks like Brexit negotiations are all but signed, sealed and delivered,” MUFG chief economist Chris Rupkey said. “One by one the major global risks to US economic growth are falling by the wayside which gives investors the green light to back up the truck and buy lots of stocks.”

Read: Goldman loses its Wall Street luster as earnings disappoint, UnitedHealth’s stock soars toward record price gain

However, S&P 500 index company earnings are expected to fall 4.6% in the third quarter, according to FactSet. This would be the first time that index company earnings have fallen for three straight quarters since the fourth of quarter of 2015 through the second quarter 2016, according to FactSet analyst John Butters. However, corporate buybacks are again seen supporting earnings per share.

“Corporate America is unlikely to deliver much, if any, earnings growth in the third quarter,” LPL Financial chief investment strategist, John Lynch said. “However, we think better days lie ahead. We expect progress on trade to keep U.S. economic growth at or above the trend for the current economic expansion. The U.S.-China trade conflict is unlikely to be resolved anytime soon, but we believe any small steps forward could increase business confidence and spark capital investment, lifting corporate profits.”

Check out: Banks look to put earnings recession in revers, but aren’t expected to succeed

Enthusiasm over a U.S.-China trade deal boosted stocks at the end of last week, but analysts said a lack of detail around planned tariff increases and other elements damped enthusiasm, leaving stocks to drift lower on Monday.

Speaking with reporters in London, St. Louis Fed President James Bullard said investors might be too optimistic about how long it takes to reach trade deals. Bullard dissented last month from the Federal Reserve’s decision to cut interest rates by a quarter point, calling instead for half-point decrease.

In its World Economic Outlook, published Tuesday, the IMF sees global economic growth falling to 3% this year, the slowest pace since the 2008 financial crisis.

Meanwhile, European stocks on Tuesday rallied on optimism over the possibility of a deal for an agreed Brexit pact as well as better-than-forecast U.S. earnings. The Stoxx Europe 600

SXXP, +1.11%

  ended 1.1% higher at 394.02, its best level since May 22, 2018.

Read: Pound surges on report of possible draft Brexit deal

Which stocks are in focus?

Dow constituent Johnson & Johnson

JNJ, +1.46%

reported earnings and revenue that rose more than Wall Street estimates, while the company raised its full-year guidance.

Shares of BlackRock Inc.

BLK, +2.43%

 were on the rise after reporting a smaller-than-expected fall in profit.

How are other markets trading?

The yield on the 10-year U.S. Treasury note

TMUBMUSD10Y, +2.37%

 rose to 1.754% from 1.748% late Friday. Bond markets were closed Monday for the Columbus Day holiday.

In commodities markets, West Texas Intermediate crude oil

CLX19, -1.34%

 fell about 6 cents to $53.53 on the New York Mercantile Exchange

Gold prices declined on Tuesday to post their lowest settlement month to date, as investors awaited clarity on U.S.-China trade talks and as earnings season starts on a positive note. Gold futures

GCZ19, -0.86%

 fell $14.10 or 10.9% to $1483.50 on Comex.

In Asia overnight, stocks trade mixed with Japan’s Nikkei

NIK, +1.87%

 rising 1.9%, the China CSI 300

000300, -0.43%

 falling 0.4% and Hong Kong’s Hang Seng index

HSI, -0.07%

 falling 0.1%. In Europe, stocks were mostly higher, as the Stoxx Europe 600

SXXP, +1.11%

 added 1.2%.


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