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Stocks were rising Thursday, as earnings across the board continued to beat expectations, while bond yields remained below their recent high. It seems everything is going right for the stock market this week.
In morning trading, the
Dow Jones Industrial Average
rose 207 points, or 0.6%, after the index ended 249 points higher on Wednesday. The
S&P 500
gained 0.5%, with the
Nasdaq Composite
climbing 0.5%.
With almost a fifth of the S&P 500’s market capitalization having reported earnings for the first quarter of the year, the aggregate earnings per share result has beaten the estimate by 8.6%, according to Credit Suisse data. Three-quarters of companies are beating expectations by any margin.
That’s certainly aiding the market gains. Companies that beat profit expectations are seeing their stocks outperform the S&P 500’s movement by 0.2 percentage points, according to Wells Fargo data.
But that’s not the only reason stocks are rising. That number shows how those stocks are performing relative to the broader market. And the market, itself, is gaining a lot. Including Thursday morning’s move, the S&P 500 is up almost 3% for the week.
One key for the market is that investors couldn’t have gotten more pessimistic than they were coming into the week. That means, historically speaking, buyers who had been on the sidelines come back into the market and send stocks upward. Data from Evercore strategists showed that pessimism found in a major survey of investors hit its lowest level in decades. That usually precedes a gain in the S&P 500 for the following three months.
That pessimism stems from several key issues. The Federal Reserve is working to bring down hot inflation by raising interest rates and soon reducing its bondholdings. That would drive less money into the bond market, lowering their prices and lifting their yields. So the 10-year Treasury yield has soared, which makes future profits for companies less valuable, sending stocks in the S&P 500 down for the year.
Now, the 10-year yield, at 2.92%, has remained below its pandemic-era closing high of 2.94% for two straight days. Some on Wall Street are beginning to anticipate a slower rise in the yield, which is helping the stock market.
It’s particularly helpful to the tech-heavy Nasdaq, which has underperformed so far this week. Many tech stocks are growing quickly, so their valuations reflect a relatively long-term stream of future profits—and lower bond yields make future profits worth more. A large gain in
Tesla
(ticker: TSLA), the market value of which accounts for about 4% of the Nasdaq’s total market value, also helped the index on Thursday.
Tesla stock jumped 7.6%, after the electric-vehicle maker earned $3.22 per share from $18.8 billion in sales in the first quarter of the year. The record results firmly outpaced Wall Street’s expectations of EPS in the range of $2.20 to $2.30.
Still, risks to earnings growth have emerged and stocks are arguably priced expensively. Markets are trying to size up the potential hit to economic growth—and profit growth—from higher interest rates. Meanwhile, the aggregate multiple on next year’s earnings per share projection for the S&P 500, at 19 times, implies that investors get a 5.3% earnings yield for every dollar they invest. That’s less than three percentage points more than the yield on the safe 10-year Treasury bond, which is historically low—and unattractive.
“The US first-quarter earnings season has gotten off to a solid start,” wrote Mark Haefele, chief investment officer of global wealth management at UBS. “But with heightened uncertainty over the pace of monetary tightening and the war in Ukraine, we recommend a neutral stance on equities overall.”
Overseas, the pan-European
Stoxx 600
was 0.4% higher, and Tokyo’s
Nikkei 225
ended 1.2% into the green.
Here are four stocks on the move Thursday:
United Airlines
(UAL) stock gained 12% after the company reported a loss of $4.24 a share, worse than the expected $4.22 loss, on sales of $7.57 billion, below expectations for $7.68 billion. The company, though, forecasted a profit for the full year.
Alaska Air Group
(ALK) stock gained 2% after the company reported a loss of $1.31 a share, better than the expected loss of $1.51, on sales of $1.68 billion, above expectations for $1.66 billion.
American Airlines
(AAL) stock gained 6.1% after the company reported a loss of $2.32 a share, better than the expected $2.40 loss, on sales of $8.9 billion, above expectations for $8.83 billion.
AT&T
(T) stock gained 3.3% after the company reported a profit of 77 cents a share, beating estimates of 61 cents a share, on sales of $38.1 billion, below expectations for $38.3 billion.
Write to Jack Denton at jack.denton@dowjones.com and Jacob Sonenshine at jacob.sonenshine@barrons.com
Read More: Stocks Rise and Tech Bounces Back