Shares on Wall Street closed broadly higher on Wednesday as investors welcomed encouraging economic data and quarterly earnings reports from major companies, including Starbucks.
The S&P 500 rose 1.6% to a nearly 2-month high, while the Nasdaq gained 2.6%. Both indices more than recouped their losses earlier in the week. The Dow Jones Industrial Average rose 1.3% and the Russell 2000 Small Company Index finished up 1.4%.
Tech companies, retailers and communications companies were among the biggest winners. Only energy stocks fell, dragged down by lower oil prices.
Investors applauded a report on the services sector, which makes up the bulk of the US economy. The sector grew faster than expected in July, according to the Institute for Supply Management. A separate report showed US orders for big-ticket durable goods rose more than expected in June.
Some recent weak data on the economy has bolstered speculation that the peak of inflation and aggressive rate hikes from the Federal Reserve may be approaching or may have already passed. The weak data, however, also shows the risk of a recession as the Fed puts the brakes on the economy.
That’s why Wednesday’s more positive economic reports helped put traders in a buying mood.
“It just provides people with more evidence that this economy is hanging in there,” said Jeff Buchbinder, equity strategist for LPL Financial. “At this point, we have a combination of evidence that inflation is down.”
The S&P 500 rose 63.98 points to 4,155.17. It had fallen almost 1% for the week before Wednesday. It is now up 0.6% for the week.
The Dow gained 416.33 points to 32,812.50. The Nasdaq added 319.40 points to finish at 12,668.16. The Russell 2000 had 26.48 points at 1,908.93.
The 10-year Treasury yield fell to 2.71% from 2.73% on Tuesday night.
The bumpy start to the S&P 500 this week follows its best month since the end of 2020. July was a rare winning period for the market, which has struggled this year on worries about the highest inflation in 40 years and raising Federal Reserve interest rates to combat it. .
Earnings remain the focus this week as investors analyze the latest earnings results and corporate statements to better understand how inflation is affecting businesses and consumers.
Drugstore chain CVS rose 6.3% after posting strong financial results and raising its profit forecast for the year. Starbucks rose 4.3% after also posting strong financial results. Nearly three-quarters of companies in the benchmark S&P 500 reported earnings for the last quarter and results mostly beat analysts’ forecasts.
Several companies, however, slipped amid disappointing results. Taco Bell owner Yum Brands fell 1.9% following a weak earnings report and online dating services company Match Group fell 17.6% after giving investors weak financial forecasts.
PayPal jumped 9.2% following a report that activist investor Elliott Management took a large stake in the payments company.
Robinhood Markets, whose stock trading app has helped attract a new generation of investors to the market, rose 11.7% after it announced it was cutting nearly a quarter of its workforce. Falling cryptocurrency prices and a turbulent stock market have kept more customers from his app.
Oil prices fell following OPEC’s decision to increase production in September at a much slower pace than in previous months. U.S. crude fell 4% to $90.66 a barrel, while Brent crude, the international standard, was down 3.7% to $96.78 a barrel.
Falling oil prices weighed on energy stocks. Hess fell 3.6%
Markets are also watching for potential economic fallout from China after US House Speaker Nancy Pelosi’s visit to Taiwan. China claims self-governing Taiwan as part of its territory and has banned imports of Taiwanese citrus fruits and frozen fish in retaliation for Pelosi’s visit. But he avoided disrupting the flow of computer chips and other industrial goods, a step that could shake up the global economy.
Upcoming labor market data could help investors determine how the Fed will continue with its aggressive interest rate policy in an attempt to keep inflation under control. US jobless claims figures for the past week will be released today, and the government will release its July jobs report on Friday.
“Expectations for Fed rate hikes may have gotten a little too aggressive,” Buchbinder said. “We don’t know if we’ll have a break by the end of the year, but there’s a good chance we’ll get a signal for a break by the end of the year.”