U.S. stock indexes are tacking a bit more onto their record highs Wednesday after big banks kicked off a highly anticipated earnings reporting season with profits that thundered past Wall Street’s expectations.
The S&P 500 was 0.1% higher, a day after returning to an all-time high. The Dow Jones Industrial Average was up 205 points, or 0.6%, to 33,883, as of 12:52 p.m. Eastern time, and above its closing record of 33,800.60 set last week. The Nasdaq composite fell 0.1% after losing an earlier gain.
Smaller company stocks far outpaced the broader market in a signal that investors are hopeful for continued economic growth. The Russell 2000 rose 1.8%.
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Companies are lining up to report how much profit they made during the first three months of 2021, and expectations are very high. With COVID-19 vaccines rolling out and businesses reopening, this may be the best quarter of earnings growth for S&P 500 companies in more than a decade.
Big banks are traditionally among the first companies to report, and Goldman Sachs, JPMorgan Chase and Wells Fargo all unveiled earnings for the first quarter that blew past analysts’ forecasts. Much of the surge was due to expectations for a rapidly improving economy, which allowed banks to free up reserves held in case loans went bad, as well as strong trading revenue.
The better-than-expected results didn’t give all the bank stocks a uniform pop, though. Goldman Sachs did rally 3.6%, but JPMorgan Chase fell 1%. Wells Fargo was 5.3% higher, but only after swerving from an early-morning loss to a gain.
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Stocks in recent earnings seasons have been failing to get as big a bounce as they usually do after reporting better-than-expected results. Analysts say it’s likely a result of how much stock prices have already rallied on expectations for the strong growth. The S&P 500 has soared roughly 85% since hitting a bottom in March 2020, even as the pandemic crunched profits for companies through last year.
Wednesday’s encouraging start to earnings season dovetails with several reports showing the economy is kicking into a higher gear as more widespread COVID-19 vaccinations and tremendous financial support from the U.S. government and Federal Reserve work through the system.
The expectations for a stronger economy, though, are also leading to worries about higher inflation. If inflation were to climb and sustain itself, it could send bond prices tumbling, erode profits for companies and trigger volatility across markets worldwide.
A report on Tuesday said that U.S. consumer prices rose more in March than economists expected, but investors largely took it in stride. The Federal Reserve has said that it expects higher inflation to be only temporary and that it’s ready to allow inflation to climb above its target level for a while before it tries to tamp down prices by raising interest rates.
“The market can handle a higher interest rate level if it’s coupled with an improving growth backdrop,” said Jack Janasiewicz, portfolio strategist at Natixis Investment Managers.
Low rates engineered by the Fed have been one of the central reasons for the stock market’s surge over the last year.
Later on Wednesday, investors may get more clues on the direction of interest rates. Fed Chair Jerome Powell will speak in an interview at the Economic Club of Washington at noon Eastern time, and Vice Chair Richard Clarida will give a speech a few hours later. The Fed will also release the latest update of its “Beige Book,” which gives anecdotes about how the economy is performing around the country.
The yield on the 10-year Treasury rose to 1.64% from 1.62% late Tuesday.
Also later on Wednesday, trading will begin for Coinbase, an exchange for bitcoin and other digital currencies.
The Nasdaq gave a $250 reference price for shares of Coinbase Global. Depending on how it performs, the company’s market value could rival or surpass other exchanges’, such as Nasdaq or Intercontinental Exchange, the owner of the New York Stock Exchange.
Interest in and prices for cryptocurrencies have been exploding recently as more companies and mainstream investors get involved. Coinbase turned a profit last year after reversing a $30.4 million loss from the year before, and it expects growth to continue because it sees the cryptoeconomy producing “a more fair, accessible, efficient, and transparent financial system for the internet age.”
Energy stocks were some of the market’s strongest on expectations that a resurgent economy will burn more petroleum products. The International Energy Agency raised its forecast for oil demand this year, up by 230,000 barrels per day to 96.7 million.
That helped benchmark U.S. crude oil rise 5% to $63.16 per barrel and Brent crude, the international standard, climb 4.7% to $66.64 per barrel. Within the S&P 500, Occidental Petroleum was one of the top-performing stocks with a gain of 5.7%. Halliburton rose 5.4%.
In European stock markets, the German DAX slipped 0.2%, and the French CAC 40 added 0.4%. The FTSE 100 in London rose 0.7%.
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