U.S. stocks rose Tuesday afternoon, following choppy morning trading, as investors took comfort in corporate earnings reports and awaited data later this week on inflation.
But market participants were also keeping a close eye on interest rates, with the yield on the 10-year Treasury note rising toward the 2% threshold.
What are stock indexes doing?
The Dow Jones Industrial Average DJIA, +1.10% was up 222 points, or 0.6%, at 35,313.
The S&P 500 SPX, +0.85% was up 14 points, or 0.3%, at 4,498.
The Nasdaq Composite COMP, +1.25% rose 89 points, or 0.6%, to 14,105.
On Monday, the Dow ended the day with a gain of around 1 point, while the S&P 500 edged down 0.4% and the Nasdaq Composite shed 0.6%.
What’s driving markets?
Stocks were rising Tuesday afternoon as investors weighed strong corporate earnings so far in the fourth quarter against their concerns over the prospect of potentially several rate hikes by the Federal Reserve this year to tame inflation.
“You have solid earnings coming through,” said Victoria Fernandez, chief market strategist at Crossmark Global Investments, who expects the Fed may raise its benchmark interest rate three or four times this year. That’s less than what the market is pricing in and “nowhere near” more aggressive estimates for as many seven rate hikes in 2022, she said by phone Tuesday.
Mostly positive corporate earnings have included a surprise profit from Harley-Davidson Inc. HOG that sent its shares soaring. The motorcycle maker has jumped more than 14% Tuesday, including afternoon trading, FactSet data show.
Investors may also be feeling a bit of relief on the geopolitical front, according to Fernandez.
French President Emmanuel Macron’s conversation Monday with Russian President Vladimir Putin seems to have lowered concerns that Russia is getting ready to invade Ukraine, “giving a little bit of a boost to the markets,” she said. There seems “a little less possibility of a large move by Russia.”
Read: Diplomatic shuttle: Macron in Kyiv after Putin talks
Rising bond yields have been the story of 2022 so far, and now the talk is how soon the U.S. Treasury10-year yield TMUBMUSD10Y, 1.957% may reach 2%, after trading around 1.96% Tuesday afternoon.
Rising yields can be a negative for technology and other so-called growth stocks, whose valuations are based on expectations for rapidly growing profit and cash flows far into the future. As yields rise, the present value of that future cash falls.
Related: Buy the dip? Why the stock market’s bounce off January lows may prove premature
Meanwhile, strategists at UBS say they are sticking to their earnings forecasts for the year, and their S&P 500 price target of 5,100 by the end of the year.
“While there remains a risk that the Federal Reserve could tighten by more than markets expect — currently six hikes of 25 basis points each — this is not our base case. With demand remaining healthy, we advise investors to focus on winners from global growth. Against a backdrop of rising rates, we expect value sectors to outperform growth sectors,” said Mark Haefele, chief investment officer for global wealth management at UBS.
The January reading of the U.S. consumer-price index, due Thursday morning, is shaping up as the key piece of economic data for the week.
In economic data Tuesday, the U.S. international trade deficit widened in December by 1.8% to $80.7 billion, marking it the second largest monthly increase ever. Economists polled by The Wall Street Journal had forecast a $82.9 billion shortfall. The deficit jumped 27% in 2021 to a record $859 billion largely because a recovering economy gave Americans the means to buy more imports, though they also paid higher prices due to rising inflation.
The National Federation of Independent Business said its small-business optimism index slipped 1.8 percentage points in January to 97.1 — an 11-month low. The NFIB said a net 61% of small businesses increased prices at the beginning of the new year, the highest percentage since 1974.
“We expect to see inflation within some of these macroeconomic numbers,” said Saira Malik, chief investment officer of Nuveen, in a phone interview Tuesday. “As long as growth remains strong, and we can put out high, single-digit earnings growth this year, the market should be able to overcome Fed rate hikes.”
Which companies are in focus?
The hurdles tech companies face in attempting to grow via deal making was underlined as Nvidia Corp. NVDA dropped its planned $40 billion acquisition of microchip designer Arm Holdings from Japanese investor SoftBank after regulatory opposition. Nvidia said it plans to take a $1.36 billion first-quarter charge. Shares of Nvidia reversed early weakness to rise 0.7%.
At-home fitness company Peloton Interactive Inc. PTON, +25.21% confirmed that co-founder John Foley will step down as chief executive and that it will implement a cost-cutting plan that will lead to 2,800 job cuts. Shares jumped around 25%.
Shares of Pfizer Inc. PFE, -3.09% fell 3.6% after the drugmaker topped Wall Street profit forecasts but missed on revenues.
Shares of Norwegian Cruise Line Holdings Ltd. NCLH, +3.78% were up more than 3% after the cruise operator confirmed that it expects to be profitable in the second half of 2022, but pushed back its timing to be cash flow positive as the omicron variant hurt bookings.
How other assets are faring?
The ICE U.S. Dollar Index DXY, +0.21%, a measure of the currency against a basket of six major rivals, rose 0.3%.
West Texas Intermediate crude for March delivery CL.1, -1.93% CLH22, -1.93% settled 2.2% lower at $89.36 a barrel. Gold futures or April delivery GC00, +0.36% GCJ22, +0.36% rose 0.3% to settle at $1,827.90 an ounce — the highest most-active contract settlement since Jan. 26, FactSet data show.
Bitcoin BTCUSD, +0.22% fell 2.3%.
The Stoxx 600 Europe SXXP, +0.01% was virtually flat, while the FTSE 100 UKX, -0.08% edged down 0.1%.
The Shanghai Composite SHCOMP, +0.67% rose 0.7%, while the Hang Seng Index HSI, -1.02% fell 1% in Hong Kong and Japan’s Nikkei 225 NIK, +0.13% edged up 0.1%.
—Steve Goldstein contributed to this article.