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Market Snapshot: U.S. shares ebook highly effective beneficial properties after rosy company earnings, financial information calm recession fears

U.S. stock indexes ended sharply higher on Wednesday as investors weighed earnings reports and better-than-expected economic data after kicking off August with back-to-back losses in the wake of geopolitical tensions generated by House Speaker Nancy Pelosi’s trip to Taiwan.

What happened

The Dow Jones Industrial Average
DJIA,
+1.29%
finished 416.33 points higher, or 1.3% to end at 32,812.50.

The S&P 500 
SPX,
+1.56%
gained 63.98 points, or 1.6% to close at 4,155.17.

The Nasdaq Composite 
COMP,
+2.59%
ended 319.40 points higher, or 2.6% to 12,668.16.

Stocks ended a choppy session with hefty losses Tuesday, with the Dow dropping over 400 points, or 1.2%, while the S&P 500 lost 0.7% and the Nasdaq Composite ticked down 0.2%.

What drove the market

Earnings season continued with solid reports from PayPal Holdings Inc.
PYPL,
+9.25%
and Moderna Inc.
MRNA,
+15.97%
lifting stocks. PayPal shares surged 9.3% Wednesday after the payments company beat analysts’ earnings and revenue estimates and announced a $15 billion share repurchasing program. Moderna said it expects to deliver $21 billion worth of COVID-19 vaccines and boosters this year, sending shares up 16%.

“I think if earnings come in sort of mid-to-high single digits, it’s a meaningful positive because I think one of the pillars of the bears case is that earnings estimates have to be rerouted dramatically lower, and so far even with some high profile (companies), that’s not been the case,” Timothy Holland, chief investment officer at Orion Advisor Solutions, said in an interview.

In U.S. economic data, an ISM barometer of business conditions at companies in July rose to a three-month high of 56.7%, suggesting the economy continues to expand despite growing headwinds.

U.S. factory orders rose 2% in June, the government said Wednesday. Economists polled by MarketWatch had forecast a 1.2% gain.

House Speaker Nancy Pelosi also left Taiwan Wednesday after meeting with the island’s president. Pelosi’s visit angered Beijing, which sees Taiwan as part of its territory. China said it would conduct live-fire military exercises in areas around the island this week.

“While it’s settling maybe from a geopolitical perspective, for some folks it seems to have gone as smoothly as one could have hoped. And I’m sure that’s probably creating a bit of short-term comfort for folks,” Holland said.

“They (China) have also followed through on banning imports or exports on goods and services to and from Taiwan, and China is a massive trading partner of Taiwan. There are a lot of different responses that can take time to materialize,” said George Catrambone, chief operating officer and head of trading at DWS Group in an interview on Wednesday. “And let’s be frank, further support of Russia would only undermine the sanctions that are out there, so I don’t know that we’ve necessarily seen the entirety of the Chinese response yet.”

Still, inflation remains a major focus. On Tuesday, stocks wavered as San Francisco President Mary Daly and Chicago Fed President Charles Evans said the Fed likely needs to raise interest rates a lot higher and probably keep them high for a while to rein in inflation. Although, Daly said the next day that it still would be reasonable to raise the benchmark rate by 50 basis points next month, if the economy evolves as expected. She admitted she doesn’t feel the pain of inflation anymore, which drew backlash online.

“I see prices rising, but I have enough that I can make substitutions, that I can do things. So I’m not immune to gas prices rising, food prices rising. I sometimes balk at the price of things,” Daly said during a Reuters interview on Wednesday. “But I don’t find myself in a space where I have to make tradeoffs, because I have enough, and many, many Americans have enough.” 

St. Louis Fed President James Bullard, in remarks late Tuesday, argued that the central bank can restore inflation to pre-pandemic lows without triggering a recession, partly because neither investors nor consumers expect prices to keep rising rapidly. Bullard, who sounded the alarm about rising inflation last year, well before the rest of his colleagues, has been among the most hawkish Fed policymakers.

Read more: Top Fed officials back aggressive interest-rate hikes until inflation eases

The second negative quarterly GDP reading last week has signaled the U.S. economy may have entered a technical recession, but strong gains in stocks this week gave investors hope that equities may recover, and potentially start a new bull market. However, analysts said that with all the macro economic difficulties and the consumer sentiment at the moment, the rally just doesn’t feel right.

“With respect to corporate earnings and earnings overall, I think that is part of that sentiment picture,” Catrambone told MarketWatch. “I’m not surprised to ultimately start to see markets rise a bit because we were on historically low sentiment indicators and quite a lot of what has been chopped to the downside this year, so we were due for a bounce.”

Read more: Stock-market rally is ‘fragile’ after investors hoped earnings ‘Band-Aid would get ripped off,’ says RBC

The Organization of the Petroleum Exporting Countries (OPEC) and its allies on Wednesday agreed to raise oil production by a small amount — 100,000 barrels per day, in response to President Biden’s trip to Saudi Arabia last month. Biden had aimed to seek assurances from main producers to pump more oil to help the U.S. economy and global supply.

Companies in focus

Moderna
MRNA,
+15.97%
gained 16% after the company beat earnings and revenue expectations in the second quarter of the year.

Starbucks
SBUX,
+4.25%
rose 4.3% after reporting better earnings than expected in the fiscal third quarter, despite a massive drop-off in comparable sales in China.

Robinhood Markets Inc.
HOOD,
+11.70%
said late Tuesday that it plans to cut its staff by 23%, citing the weakening economic environment and depressed trading activity. Shares of the online trading platform were up 11.7%.

Shares of SoFi Technologies Inc.
SOFI,
+28.39%
jumped more than 28.4% after the company beat expectations with its latest results and signaled various benefits stemming from its bank charter.

Under Armour Inc.
UA,
+2.55%
shares rose 2.6%, after the athletic apparel and gear company matched fiscal first-quarter profit expectations and topped on revenue, but cut its full-year earnings outlook amid continued gross margin contraction.

CVS Health Corp.
CVS,
+6.30%
shares gained 6.3% after the drugstore chain and medical benefits company posted better-than-expected second-quarter earnings and raised guidance.

PayPal Holdings Inc.
PYPL,
+9.25%
late Tuesday announced a new chief financial officer, buyback authorization and a cost-savings program, while also confirming that activists at Elliott Management Corp. have taken a stake in the company. The company topped expectations with its second-quarter financial results while delivering a mixed update on guidance for the full year. PayPal shares were up 9.3%.

Airbnb Inc.
ABNB,
-1.13%
said late Tuesday that it had its first profitable second quarter as a public company, and that it is so confident in its business that it is buying back $2 billion of its stock. Shares fell 1.1%.

Other assets

The yield on the 2-year Treasury note 
TMUBMUSD02Y,
3.065%
 yielded 3.108%, while the 10-year Treasury yield 
TMUBMUSD10Y,
2.705%
 rose to 2.747%.

The ICE U.S. Dollar Index
DXY,
+0.13%,
 a measure of the currency against a basket of six major rivals, picked up 0.1%.

The oil benchmark, West Texas Intermediate crude for September delivery 
CL.1,
-3.71%

CL00,
-3.71%
fell $3.76, or 4%, to close at $90.66 a barrel on the New York Mercantile Exchange.

Gold futures for December delivery
GCZ22,
-0.42%
went down $13.30, or 0.7%, to settle at $1,776.40 per ounce.

Bitcoin 
BTCUSD,
-0.22%
 rose 1.7% to trade near $23,338.

China’s benchmark Shanghai Composite 
SHCOMP,
-0.71%
 ended 0.7% lower, while the Hang Seng Index 
HSI,
+0.40%
 picked up 0.4% in Hong Kong and Japan’s Nikkei 225 
NIK,
+0.53%
advanced 0.5% at close.

The STOXX Europe 600 Index
FXXP00,
+0.07%
and London’s FTSE 100 Index
UKX,
+0.49%
each gained about 0.5%.

— William Watts contributed to this article.

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