Stocks rose on Wall Street on Tuesday as a slew of US companies released their latest quarterly reports, providing fresh insights into the state of the US economy. The S&P 500 climbed 0.5%, while the Dow Jones gained 62 points, or 0.1%, by 11:35 a.m. Eastern time. The Nasdaq composite saw a more robust increase of 0.8%. Meanwhile, the Australian share market is poised for a positive start, with futures at 4:54 a.m. AEDT indicating a rise of 76 points, or 0.9%, at the opening bell. This follows a slight dip of 0.1% on the ASX the previous day. The Australian dollar was trading at $US65.05¢ at 5:05 a.m. AEDT.
The gains mark a reversal from the prior day’s decline, driven largely by the resurgence of big technology stocks. Notably, Nvidia rose 1.6% and Alphabet, Google’s parent company, jumped 2.4%. These tech giants, due to their substantial market values, exert significant influence over the broader market indices.
Corporate Earnings Drive Market Movements
Several industrial giants also contributed to the market’s upward trajectory. Companies across a range of sectors reported their latest financial results, offering updated forecasts that buoyed investor sentiment. McDonald’s saw a 2% rise in its stock price after reporting a boost in sales, attributed to the return of its popular Snack Wraps in the third quarter. International Flavours & Fragrances experienced a substantial 4.7% increase after surpassing Wall Street’s quarterly profit forecasts.
Conversely, some companies faced setbacks. Taser manufacturer Axon Enterprise plummeted 11.9% following a forecast of weaker-than-expected profits. Similarly, Live Nation Entertainment fell 7.8% after its latest results failed to meet analysts’ expectations.
Economic Indicators Amid Government Shutdown
The current earnings season offers Wall Street crucial insights into consumer behavior, business health, and economic conditions, especially in light of the ongoing government shutdown. With critical monthly updates on inflation and employment halted, investors, economists, and the Federal Reserve lack a comprehensive view of the economy. However, several private economic reports continue to provide valuable information.
A recent report from ADP indicated that private payrolls increased more than anticipated in October. This data provides a partial view of the job market, which has been showing signs of weakening, raising broader concerns about economic growth. According to the Institute for Supply Management, the services sector, the largest component of the US economy, expanded more than expected in October. While overall business activity grew, employment within the sector continued to contract.
“The survey provides a reassuring sign that economic growth persisted in October despite the government shutdown,” Bill Adams, chief economist for Comerica Bank, noted to investors.
Federal Reserve’s Dilemma: Balancing Inflation and Employment
The Federal Reserve faces a challenging environment as it navigates a weaker job market and persistent inflation. The central bank recently cut its benchmark interest rate for the second time this year, aiming to support the economy amid a softening labor market. Fed Chair Jerome Powell and other officials have expressed caution regarding further rate cuts, given the risk of exacerbating inflation.
“For Fed watchers, this ADP report should make it clear that a December rate cut is now in play,” stated Jamie Cox, managing partner for Harris Financial Group. “We are nearing stall speed in the labor market, and that will get the Fed’s attention.”
Wall Street’s expectations for another rate cut in December have moderated. Investors now predict a 65% probability of a rate reduction, down from 90% before the previous cut, according to CME FedWatch.
In the bond market, Treasury yields rose, with the 10-year Treasury yield increasing to 4.15% from 4.09% late Tuesday, and the two-year Treasury yield climbing to 3.62% from 3.58%.
Global Market Reactions
European markets gained ground, reflecting optimism from Wall Street’s rebound. However, Asian markets closed mostly lower, indicating a mixed global response to the latest economic data and corporate earnings.
As the financial landscape continues to evolve, investors remain vigilant, balancing optimism from corporate earnings with caution over economic indicators and Federal Reserve policy decisions. The coming weeks will be crucial in determining whether this positive momentum can be sustained amid ongoing economic uncertainties.
