US stocks rallied on Wednesday, recouping this week’s losses as investors weathered the earnings season and weighed upbeat economic data from the services sector.
The S&P 500 jumped 1.6% and the Dow Jones Industrial Average gained 450 points, or about 1.4%. The tech-heavy Nasdaq Composite jumped 2.6%.
Bonds also rose after the Fedspeak hawkish on Tuesday, with the benchmark 10-year Treasury yield nearing 2.8% and the 2-year yield rising above 3.1%.
Economic data released on Wednesday that showed the U.S. services sector rebounded in July helped lift sentiment. The ISM Services PMI rose to 56.7% last month from 55.3 in June as supply chain issues appeared to ease.
CVS shares (SVC) gained 5% after the drugstore chain reported better-than-expected earnings and raised its full-year guidance.
Starbucks (SBUX) shares rose 3% after the cafe released fiscal third-quarter results on Tuesday evening that far exceeded Wall Street estimates despite inflationary pressures, labor costs, organizing efforts and the search for a permanent CEO cloud the quarter.
As economic data shows signs of slowing and companies continue to dim their outlook, analysts are making cuts bigger than the average earnings per share estimate for S&P 500 companies for the third quarter. According to FactSet data, Wall Street lowered its consensus upward estimate of EPS by 2.5% from June 30 to July 28. Over the past five years – or 20 quarters – the average decline in the upward estimate of EPS in the first month of a quarter has been 1.3%.
In commodity markets, OPEC and its allies have given the green light to a small increase of about 100,000 barrels per day in oil production following calls from the United States and other large consumers to an increased supply. This decision, although symbolic, should have little impact on prices. Crude oil retreated from a daily high in the afternoon, with WTI (CL=F) just above $92 a barrel and Brent (BZ=F) at around $98.20.
Wednesday’s moves follow a bearish day on Wall Street that saw stocks close down for second consecutive session amid high-stakes visit by Speaker of the House Nancy Pelosi in Taiwan who raised concerns about US-China relations.
On Tuesday, investors digested the hawkish Fedspeak that suggested more interest rate hikes were on the way as part of the central bank’s efforts to rein in inflation. San Francisco Fed President Mary Daly said Tuesday that policymakers were “resolved and completely unitedin their aim to restore price stability, and Chicago Fed President Charles Evans told reporters that officials were “at least a few reports away” from seeing enough improvement in inflation data to reduce the pace of rate increases.
Meanwhile, St. Louis Federal Reserve Chairman James Bulllard said the US Federal Reserve and European Central Bank can still achieve a “relatively soft landing” as they tighten monetary conditions.
“I think the story for the markets is always, ‘What’s going on with the Fed? What happens with the crunch? “As far as geopolitics goes, that’s not really driving market movement at the moment.”
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc