US stocks moved higher on Wednesday, as equities continued their recovery after a one-day price swing to start the week.
Better-than-expected earnings reports from Dow members Coca-Cola and Johnson & Johnson added to the bullish sentiment.
The Dow Jones Industrial Average rose 286.01 points, or 0.83%, to 34,798.00. It is less than 1% away from a record. The S&P 500 gained 0.82% to 4,358.69. The Nasdaq Composite climbed 0.92% to 14,631.95.
The 30-stock index rose nearly 550 points on Tuesday, after dropping 725 points on Monday for its worst session in eight months. The back-to-back rallies have now completely wiped out early week losses across all three indices.
“Tuesday was a textbook that was oversold after Monday’s collapse,” Thomas Essaye of Sevens Report Research said in a report Wednesday. “Aside from short-term swings, however, in order for value and cyclical values to reappear, we will need to see yields outpacing bottoms and economic growth (two things we think will happen).”
The bond market, especially 10-year government bond yields, is the driving force behind equity markets. On Wednesday, the 10-year yield rose 8 basis points to 1.29% (1 basis point equals 0.01%). Yields fell to a new 5-month low on Monday, before stabilizing on Tuesday. The drop in interest rates made equity investors nervous by signaling a possible slowdown in the economy due to the spread of Covid variants or a possible mistake by the Federal Reserve.
Even as bonds move higher, the trend is still down, compared to five months ago when the 10-year period was above 1.7%.
“The catalyst for why investors have become familiar with risky assets over the past two days is admittedly elusive,” Goldman Sachs’ Chris Hussey said Wednesday. “Perhaps investors have just come to embrace the idea that the response function to a new wave of the virus will probably not be the same as the response function used in the spring of 2020.”
Stocks that would benefit most from an ongoing rapid economic reopening rose Wednesday after recovering from Monday’s sell-off in the previous session. Carnival’s shares rose 9.4%. Las Vegas Sands rose 3.4%.
Energy stocks led the ongoing rally, while oil continued to recover after falling below $70 a barrel on Monday. The Energy Select SPDR was up 3.4%.
Dow member Coca-Cola gave an early boost to market sentiment after reporting quarterly sales that surpassed pre-pandemic 2019 levels and raising its full-year forecast. Coca-Cola shares gained more than 1%.
Shares of fellow Dow member Johnson & Johnson traded nearly flat even after the drugmaker reported better-than-expected second-quarter earnings and earnings and also raised its expectations for 2021.
Moderna joined the S&P 500, giving the stock a 30% boost from a week ago. The stock gained almost 4.5%.
Verizon stock rose slightly after reporting better-than-expected revenue and subscriber growth and elevating its full-year outlook.
Shares of Chipotle rose 11.5% as the Mexican fast food chain reported quarterly sales that surpassed pre-pandemic levels as dinner patrons returned to the restaurants.
Netflix reported disappointing third-quarter subscriber guidance on Tuesday after the bell. The streaming giant said it expects 3.5 million net subscribers in the third quarter, nearly 2 million below analysts’ estimates. The company also reported revenues that exceeded expectations.
Netflix stocks last fell 3.2%.
According to FactSet, about 85% of the S&P 500 companies that have reported so far have exceeded estimates.
On Tuesday, reopening stocks recovered sharply from Monday’s sell-off triggered by a Covid-inspired global growth scare. American Airlines rose 4% and Norwegian Cruise Line rose 10%.
Some strategists see the market heading for a volatile period, where a deeper pullback could occur. Investors are juggling concerns about inflation and new Covid cases recovering in the US as the delta variant spreads.
“I think what we’ve seen here are the early warning shots of a correction that we’re likely to see in late August, September, October,” said Matt Maley, stock strategist at Miller Tabak.
However, data shows that spikes in Covid cases typically don’t keep the stock market low for long. In the 14 months since April’s peak in the average daily number of cases last year, the number of cases in the US has risen fourfold, while the S&P 500 remained positive.
Goldman’s Hussey said a better understanding of Covid and the vaccines available to mitigate its impact could contribute to market confidence that US economic activity is unlikely to freeze again with another wave of virus cases.
Rich Steinberg, chief market strategist at The Colony Group, told CNBC he could expect “the continuation of investors’ whipsaw behavior.”
“We will have a follow-up rally as investors are conditioned to buy the dip,” he said. “They are also negatively conditioned to worry about the economy and the virus from last year’s stressful world. I would describe the environment as skittish, but we don’t see high levels of short-termism.”
– with reporting from CNBC’s Patti Domm and Michael Bloom