Wall Street buoyant on earnings optimism, overshadows rising yields

FILE PHOTO: A Wall Street sign outside the New York
FILE PHOTO: A Wall Street sign outside the New York Stock Exchange

(Reuters) – All three of Wall Street’s main indexes sailed higher on Tuesday as positive earnings reports emboldened investors amid more talk of aggressive policy steps to stem inflation and 30-year Treasury yields breaching 3% for the first time in three years.

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Shares of megacap companies, including Microsoft Corp, Apple Inc and Amazon.com Inc, rose between 0.7% and 2.7%, even as Treasury yields extended a recent surge. [US/]

Johnson & Johnson advanced to a record high, before pulling back slightly, as its quarterly profit exceeded market expectations and it raised its dividend payout. The drugmaker was 2.8% higher in early afternoon trading.

“People came into this earning season excessively pessimistic – overweight in cash and commodity, panic selling out of bonds and tech,” said Thomas Hayes, chairman at Great Hill Capital in New York.

“But guidance is not coming down as much as people anticipated. We’re going to see more of it throughout this earnings season, particularly in the tech sector, which everyone could not be more pessimistic about moving into earnings season.”

Of the 49 companies in the S&P 500 index that have reported quarterly earnings so far, 79.6% have exceeded profit estimates, as per Refinitiv data. Typically, 66% beat estimates.

Streaming giant Netflix Inc and IT firm International Business Machines Corp, set to report after the closing bell, gained 2.9% and 1.9%, respectively.

St. Louis Federal Reserve Bank President James Bullard on Monday repeated his case for increasing the rates to 3.5% by the end of the year to slow a 40-year-high inflation. He also said he did not rule out a 75 basis points rate hike.

Stocks appeared to brush aside the comments, but bonds fell, pushing the 30-year yield to 3% for the first time since April 2019 as investors adjusted for faster interest rate hikes this year.

Bank stocks benefited from the move, as lenders typically make more money when the yield curve steepens. Wells Fargo & Co, Bank of America Corp and Morgan Stanley gained between 1.3% and 2%.

By 1:48 p.m. ET, the Dow Jones Industrial Average rose 366.34 points, or 1.06%, to 34,778.03, the S&P 500 gained 50.96 points, or 1.16%, to 4,442.65 and the Nasdaq Composite added 219.77 points, or 1.65%, to 13,552.13.

Ten of the 11 major S&P subsectors were higher, led by consumer discretionary stocks. Among the best performers in the index were gaming companies, with Wynn Resorts Inc, Caesars Entertainment Inc and Penn National Gaming Inc all more than 6% higher.

Energy stocks fell 0.7% as oil prices tumbled nearly 5% after the International Monetary Fund cut its growth forecasts for the global economy and warned of higher inflation. [O/R]

This year’s rally in crude prices, which are still up around a third despite Tuesday’s declines, helped Halliburton Co post an 85% rise in first-quarter adjusted profit as demand for its services and equipment increased. However, the oilfield services firm’s shares were 0.9% lower, amid the wider slump in energy stocks.

Travelers Cos Inc also fell 5.2%, despite the property and casualty insurer posting a better-than-expected quarterly profit.

Meanwhile, Twitter Inc slipped 1.2%. More private equity firms have expressed interest in participating in a deal for the micro blogging site, according to reports.

(Reporting by Sruthi Shankar and Devik Jain in Bengaluru and David French in New York; Editing by Anil D’Silva and Arun Koyyur, Sriraj Kalluvila and Grant McCool)