Major banks kicked off earnings season on Tuesday, leading the market higher, as investors rotated out of big tech stocks and remained wary about the recent surge in new coronavirus cases across the United States.
The Dow Jones Industrial Average was up 2.1%, nearly 600 points, on Tuesday, while the S&P 500 rose 1.3% and the tech-heavy Nasdaq Composite gained 0.9%.
Shares of JPMorgan moved higher after the bank reported better-than-expected second quarter earnings, boosted by a 79% surge in trading revenue.
Citigroup also reported higher trading revenues that helped it beat Wall Street expectations for the quarter, but profits fell 73% from a year earlier, causing its stock to fall nearly 4%.
Shares of Wells Fargo, on the other hand, dropped 5% after the bank reported a $2.4 billion loss—its first quarterly loss since the 2008 financial crisis—and slashed its dividend to 10 cents per share.
Shares of big tech companies like Amazon and Netflix, which helped boost the market higher in recent weeks, declined on Tuesday as investors took profits and rotated back into cyclical stocks.
The stock market continues to largely hold steady despite a backdrop of surging coronavirus infections across the country: The U.S. reported record numbers of daily new cases last week, with many states now rolling back reopening plans.
But market sentiment got a boost after Florida reported a decrease in daily coronavirus cases, while California’s rate of increase declined slightly from Monday.
“Stocks already are pricing in a steady economic recovery beyond 2020 that may be supported if we receive breakthrough treatments to end the COVID-19 pandemic,” said LPL Financial in its mid-year outlook. “However, the optimism we see reflected in the S&P 500 Index now may limit the size of the gains over the rest of the year.”
“Given the nonstop rally of late in the Nasdaq and earnings season on the horizon,” the latest reversal in stocks “should at least serve as a reality check that the market isn’t a one-way street,” Bespoke Investment Group said in a recent note.
Corporate profits are expected to plunge 44% in the second quarter, according to Refinitiv data. That would be the worst drop since the fourth quarter of 2008, when corporate profits declined by 67%.
The S&P briefly turned positive for the year before closing lower in Monday’s volatile trading session. The Dow gave up a 500-point gain before ending the day up only 10 points. Much of the sell-off can be attributed to a rollover in big tech stocks, which had helped boost the market—with the Nasdaq hitting several record highs last week.
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