Stocks extend rally as U.S. companies report solid profits
Stocks rose on Wall Street, adding to weekly gains for major indexes that have been mired in a broad slump amid inflation and recession concerns. Major indexes also notched significant gains to open the week on the strength of better-than-expected corporate earnings.
The S&P 500 rose 42 points, or 1.1%, to 3,720 on Tuesday, while the Dow Jones Industrial Average added 338 points, or 1.1%, to 30,524. The Nasdaq gained 0.9%.
Despite fears of recession, investors are taking heart in solid corporate profits as earnings season heats up and companies head into the key holiday shopping season.
"While it's still very early in the Q3 season, results are coming in decently (certainly better than feared). [Management] teams are acknowledging some storm clouds on the horizon, but the operating environment isn't nearly as bad as the category 4 hurricane many feared just a few weeks ago," Adam Crisafulli of Vital Knowledge said in a report.
Johnson & Johnson, which brings in nearly half of its sales from outside the U.S., beat third-quarter expectations but narrowed the range of its 2022 forecast due to the strengthening dollar. Shares rose 1.7% before the bell.
Goldman Sachs posted quarterly earnings of $3.07 billion, easily beating Wall Street expectations and shares are up almost 3%.
Netflix and United Airlines report earnings after the closing bell Tuesday. Tesla, American Airlines and a pair major railroads, which are in the middle of a contested union vote on a new contract, post earnings Thursday.
The euro fell to 98.31 cents from 98.41 cents. The soaring dollar is now worth more than the euro for the first time in 20 years.
Elsewhere, a release of China's most recent economic growth figures due out Tuesday was postponed, removing one factor that had been expected to drive trading. No specific reason was given, but the GDP report might have conflicted with the confident tone of a Communist Party congress being held in Beijing.
Economists say the world's No. 2 economy may have grown by as little as 3% in the latest quarter, barely half the official 5.5% target.
The data weren't likely to "paint a particularly positive picture of the Chinese economy" when they are eventually released, ING Economics said in a report, adding that "the delay suggests that the government believes that the 20th Party Congress is the most important thing happening in China right now and would like to avoid other information flows that could create mixed messages."
Will rally last?
Despite the jump in stocks, many Wall Street analysts preach caution as the Federal Reserve continues to ratchet up interest rates in a bid to stem the hottest inflation in 40 years.
"We do not believe the conditions are in place for a sustained rally, and the risk-reward for markets over the next three to six months is unfavorable, in our view," Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note.
"Major central banks look likely to keep tightening rates until the first quarter of 2023; economic growth will likely continue to slow into the start of the new year; and global financial markets are vulnerable to stress while monetary policy continues to tighten," Haefele said.
Wall Street indexes remain sharply lower from where they were at the beginning of this year. The S&P 500 and Russell are down more than 22%, while the Nasdaq has slumped more than 31%. The Dow is off nearly 17%.
Investors worry that inflation is driving the risks for recession higher as the Federal Reserve and other central banks raise interest rates to cool surging prices.
The latest round of corporate financial results could help give investors a clearer picture of how companies and consumers are handling inflation.
Other big names reporting earnings this week include American Airlines, Union Pacific and American Express.
In energy trading, U.S. benchmark crude oil gave up 12 cents to $85.34 per barrel in electronic trading on the New York Mercantile Exchange. It lost 15 cents to $85.46 per barrel on Monday.
Brent crude, the basis for pricing international oil, was essentially unchanged at $91.17 per barrel.
On Monday, the S&P 500 climbed 2.6% and the Dow Jones Industrial Average gained 1.9%. The Nasdaq added 3.4%, while the Russell 2000 index rose 3.2%.