.S. stocks climbed Thursday, after touching their highest level in six weeks, despite weak economic data but good second-quarter earnings from Tesla Inc. helped to support the tech-heavy Nasdaq Composite.
How stocks are trading
On Wednesday, the Dow Jones Industrial Average rose 48 points, or 0.15%, to 31875, the S&P 500 increased 0.5%, to 3960, and the Nasdaq Composite gained 1.5% to 11898. The Russell 2000 index has gained 89.53 points or 5.15% over the last two trading days, its largest two-session percentage gain since January 7, 2021.
What’s driving markets
Stronger-than-expected second quarter corporate earnings have helped stocks to recover to their best levels in a month this week, even as economic data suggest the U.S. economy is slowing.
On the corporate earnings front, shares of Danaher Corporation DHR, 8.68%, Philip Morris International PM, 3.92%, and Tesla TSLA, 9.39% all traded sharply higher as Wall Street cheered their second-quarter results.
“It’s an earnings rally, which I think will continue through the remainder of the summer,” said Peter Cardillo, chief market economist at Spartan Capital, by phone.
Next week’s raft of coming earnings reports from large companies should help investors “come to some conclusions” about the overall health of companies, he said, including how businesses have been coping with high inflation, tighter monetary policy and the threat of a recession.
About 18% of S&P 500 index companies have reported earnings for the second quarter so far and of those, about 71% have beaten expectations, according to FactSet.
The outlook for Federal Reserve policy is still of paramount importance for markets though, said Matthew Tuttle, CEO of Tuttle Capital Management.
“We’re focused on earnings, we’re focused on rates. Rates are down again this morning, that’s a positive,” he said.
“But I think we’re focused on the battle between two possible scenarios, which is: runaway inflation with really high rates, or recession with rates not as high as we thought they would be, with the possibility of an actual cut.”
In economic data, U.S. weekly jobless claims continued to rise last week, increasing to more than 250,000 for the first time since November.
The U.S. leading economic index fell for the fourth month in a row and may be pointing to recession around end of the year, the Conference Board said.
But Cardillo said a recession scenario is what the “market is already discounting,” after a bruising start to 2022 across financial assets. “The central banks are now on the path of fighting inflation, and the market likes that,” he said. “That’s not a negative.”
The S&P 500 index in June hit an 18-month low on worries about how surging inflation and tighter monetary policy would crimp company profits, but it has since rallied on a view that those fears may be overdone.
The improved mood of late is particularly evident in signs of resurgent demand for some of the more speculative stocks that got badly hit over the past year or so.
For example, shares in the ARK Innovation ETF ARKK, 1.20%, run by high-profile fund manager Cathie Wood, were up 2.2% on Thursday, having jumped 10.8% over the past five sessions. Still, the fund, which includes the likes of Zoom ZM, 3.27%, Tesla, Teladoc TDOC, -0.46% and Roku ROKU, 0.41%, is off nearly 60% over the past 12 months.
Plenty of room for catch-upARK Innovation ETF and S&P 500Source: FactSet