By Akane Otani
U.S. stocks roared back on Tuesday, recovering some of last
week's sharp losses as upbeat economic and earnings reports
provided investors with new evidence that the domestic expansion
remains on strong footing.
The Dow Jones Industrial Average jumped more than 500 points, a
fresh sign that while the market's sharp swings so far this month
had shaken investors, they hadn't punctured their confidence in
stocks.
Many investors have maintained that the domestic economy remains
robust -- something they say has helped the nine-year bull market
shake off periodic tumbles. Investors got the latest reminder of
that strength Tuesday when Goldman Sachs Group Inc. and Morgan
Stanley said third-quarter profits surged by double-digit
percentages, thanks to a flurry of deal making and trading.
Separately, Labor Department data showed the number of available
jobs in the U.S. topping by 902,000 the number of jobless Americans
actively looking for work, the most on record.
"U.S. growth is still very strong at this point, so we do have
that tailwind domestically," said Yousef Abbasi, global market
strategist at financial-services firm INTL FCStone.
Shares of rapidly growing technology companies, which had led
markets higher through much of the year only to tumble last week,
helped lead Tuesday's market bounce. Facebook Inc. shares rose
3.4%, while Alphabet Inc. added 2.8% and Microsoft Corp. climbed
3.2%.
Netflix Inc. added to the upbeat sentiment by reporting
better-than-expected user growth for the third quarter after the
market's close Tuesday. Its shares rose more than 13% in
after-hours trading.
Among major market indexes, the Dow Jones Industrial Average
jumped 547.87 points, or 2.2%, to 25798.42, posting its biggest
one-day percentage gain since March. The S&P 500 added 59.13
points, or 2.1%, to 2809.92 and the Nasdaq Composite climbed 214.75
points, or 2.9%, to 7645.49, also notching its best session since
the spring.
Meanwhile, the yield on the benchmark 10-year U.S. Treasury
note, whose swift rise earlier this month caused so much investor
unease, was little changed Tuesday. The rate, which is used as a
reference for everything from mortgage rates to auto loans, settled
at 3.158%.
The yield remains well above its 3.055% close at the end of the
third quarter and its 2.409% settle on Dec. 29. But some investors
contend the sharp uptick in rates over the past month is partly a
vote of confidence in the U.S. economic expansion, the
second-longest on record.
"We don't see yields going in the next year to a level that
crushes the economy and therefore crushes the stock market," said
Dave Donabedian, chief investment officer at CIBC Private Wealth
Management.
While investors are likely to contend with more volatility as
interest rates continue to rise, "that will also be counteracted by
periods in which investors embrace what we think will be decent
earnings growth in 2019 and valuations that are reasonable," Mr.
Donabedian added.
Still, many investors remain sensitive to the threats posed by
fractious trade relations around the world.
Between the start of the third-quarter earnings season and
Friday, a dozen S&P 500 companies mentioned tariffs on their
earnings calls, according to FactSet.
Some analysts worry that number could balloon in the next
several months, eventually crimping broader earnings growth. Fund
managers are the most pessimistic they have been on global growth
since November 2008, Bank of America Merrill Lynch data show.
Another concern is that bets on technology stocks may have
become overextended after a long run. Investors have ranked a
handful of U.S. and Chinese mega-cap technology stocks as the most
crowded trade for nine consecutive months, according to Bank of
America Merrill Lynch's October fund-manager survey.
So far, though, such fears haven't derailed the U.S. stock
rally. After Tuesday's gains, the S&P 500 is up 5.1% for the
year, far outpacing the Stoxx Europe 600's 6.2% decline, Japan's
Nikkei 255's 0.9% fall and the Shanghai Composite's 23% slide.
Additionally, many investors believe that with strong earnings,
sectors including technology will be able to keep powering higher.
Earnings for the group are expected to rise 17% in the third
quarter from the year-earlier period, according to FactSet,
extending a streak of double-digit growth.
"The big driver of gains the last few years has been beating
expectations and positive guidance," said John Frank, a strategist
for the tech-heavy Invesco QQQ Trust.
Meanwhile, the latest stream of corporate earnings gave a boost
to the financial sector, sending Goldman Sachs up 3% and Morgan
Stanley 5.7% higher. The two firms, the last of the country's six
biggest banks to report quarterly results, capped off a streak of
largely robust earnings, showing investors that big banks had
managed to shrug off worries about geopolitical tensions.
Michael Wursthorn contributed to this article
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
October 16, 2018 17:44 ET (21:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.