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Market Snapshot: S&P 500, Nasdaq book 3rd straight day of gains on better corporate earnings than feared

U.S. stocks closed higher Thursday with all three benchmarks touching their highest levels in six weeks, as weak economic data was offset by healthy second-quarter earnings from Tesla Inc. and others.

How stocks are trading

Dow Jones Industrial Average
DJIA,
+0.51%

rose 162.06 points, or 0.5%, to 32,036.90.

S&P 500 SPX gains 39.05 points, or 1.0%, to 3,998.95.

Nasdaq Composite
COMP,
+1.36%

traded 161.96 points, or 1.4%, higher at 12,059.61.

Russell 2000
RUT,
+0.48%

index rose 8.71 points, or 0.5%, to 1,836.65.

On Wednesday, the Dow Jones Industrial Average rose 48 points, or 0.15%, to 31875, the S&P 500 increased 0.5%, to 3960, and the Nasdaq Composite gained 1.5% to 11898. The Russell 2000 index has gained 89.53 points or 5.15% over the last two trading days, its largest two-session percentage gain since January 7, 2021.

What’s driving markets

Stronger-than-expected second quarter corporate earnings have helped stocks to recover to their best levels in more than a month this week, even as economic data suggest the U.S. economy is slowing.

On the corporate earnings front, shares of Danaher Corporation
DHR,
+9.07%
,
Philip Morris International
PM,
+4.19%
,
and Tesla
TSLA,
+9.78%

all traded higher as Wall Street cheered their second-quarter results.

Read: Here’s the incredibly strong signal for stocks that is coming from the corporate bond market

“It’s an earnings rally, which I think will continue through the remainder of the summer,” said Peter Cardillo, chief market economist at Spartan Capital, by phone.

Next week’s raft of coming earnings reports from large companies should help investors “come to some conclusions” about the overall health of companies, he said, including how businesses have been coping with high inflation, tighter monetary policy and the threat of a recession.

About 18% of S&P 500 index companies have reported earnings for the second quarter so far and of those, about 71% have beaten expectations, according to FactSet.

The outlook for Federal Reserve policy is still of paramount importance for markets though, said Matthew Tuttle, CEO of Tuttle Capital Management.

“We’re focused on earnings, we’re focused on rates. Rates are down again this morning, that’s a positive,” he said.

“But I think we’re focused on the battle between two possible scenarios, which is: runaway inflation with really high rates, or recession with rates not as high as we thought they would be, with the possibility of an actual cut.”

In economic data, U.S. weekly jobless claims continued to rise last week, increasing to more than 250,000 for the first time since November.

The U.S. leading economic index fell for the fourth month in a row and may be pointing to recession around end of the year, the Conference Board said.

But Cardillo said a recession scenario is what the “market is already discounting,” after a bruising start to 2022 across financial assets. “The central banks are now on the path of fighting inflation, and the market likes that,” he said. “That’s not a negative.”

The S&P 500 index in June hit an 18-month low on worries about how surging inflation and tighter monetary policy would crimp company profits, but it has since rallied on a view that those fears may be overdone.

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.881%

fell below 3% Thursday as investors digested signs of a lowing U.S. economy and President Biden tested positive for COVID-19.

The improved mood of late is particularly evident in signs of resurgent demand for some of the more speculative stocks that got badly hit over the past year or so.

For example, shares in the ARK Innovation ETF
ARKK,
+1.75%
,
run by high-profile fund manager Cathie Wood, were up 1.8% on Thursday, having jumped 10.8% over the past five sessions. Still, the fund, which includes the likes of Zoom
ZM,
+3.51%
,
Tesla, Teladoc
TDOC,
+1.06%

and Roku
ROKU,
+1.51%
,
is off 60% over the past 12 months.

Some observers remain cautious, however, and worry the latest bounce is just another bear market recovery. The burden of proof is on the bulls to extend the summer rally, said markets strategists at Bank of America.

“Even if a summer recovery continues beyond 3946 [for the S&P 500], there is plenty of resistance near 4157-4178 ahead of weaker seasonality into September/October,” said a team of BofA quantitative analysts in a note to clients.

Over in Europe, the European Central Bank hiked its benchmark interest rate for the first time in 11 years, while also approving an “anti-fragmentation tool” intended to stop yields on European bonds from spiraling out of control. The central bank is hiking rates to try to suppress inflation in the eurozone, which has risen sharply in the wake of the pandemic and the war in Ukraine.

Stocks in focus

Blackstone Inc.
BX,
-3.18%

shares fell 3.2% on Thursday after the private-equity firm said it swung to a second-quarter loss of $29.4 million, or 4 cents a share, from net income of $1.31 billion, or $1.82 a share in the year-ago quarter.

AT&T
T,
-7.62%

dropped 7.6% after lowering its free cash flow guidance though the telecommunications company exceeded expectations in its second quarter.

American Airlines
AAL,
-7.43%

dropped 7.4% after beating revenue expectations in the second quarter, and forecast a third-quarter profit, as consumers continue to travel even with higher prices.

Carnival Corp.
CCL,
-11.18%
,
Norwegian Cruise Line Holdings
NCLH,
-7.28%

and Royal Caribbean Cruises Ltd.
RCL,
-8.24%

all slumped after Carnival sold $1 billion in shares.

Tesla
TSLA,
+9.78%

 shares jumped 9.8% after the auto maker reported stronger-than-expected earnings but shrinking automotive gross margins.

How are other assets faring

Oil futures were lower with U.S. crude
CL.1,
+0.11%

CLU22,
+0.11%

fell $3.53, or 3.5% to settle at $96.53 a barrel, as energy tensions eased. September Brent crude
BRN00,
+0.03%

BRNU22,
+0.03%
,
 the global benchmark, dropped $3.06, or 2.9%, to $103.86 a barrel on ICE Futures Europe, the lowest since July 15.

The 10-year Treasury yield
TMUBMUSD10Y,
2.881%

fell 12.7 basis points to 2.908% from 3.035% in the previous session. That’s the yield’s biggest drop since June 22.

Gold
GC00,
+0.16%

GCQ22,
+0.16%

climbed $13.20, or 0.8%, to settle at $1,713.40 after trading near its weakest level since early 2021.

Bitcoin
BTCUSD,
-0.25%

fell 0.9% to $23,034 after Elon Musk said Tesla had sold most of its holding of the cryptocurrency.

The STOXX 600 index XX:SXXP of European stocks rose 0.4%, and the dollar was barely changed against the euro EURUSD at $1.0196. London’s FTSE
UKX,
+0.09%

rose 0.09%.

-Additional reporting by Jamie Chisholm and Isabel Wang

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