Stocks Gain as Earnings Growth Keeps Accelerating: Markets Wrap

• January 16 2018
• Kailey Leinz, Sarah Ponczek

U.S. stocks rose as the strong earnings season continued with another major bank reporting healthy results. The dollar rose, while Treasuries declined and gold extended Tuesday’s drop, as Congress appeared closer to a deal to avert a government shutdown after…

U.S. stocks rose as the strong earnings season continued with another major bank reporting healthy results. The dollar rose, while Treasuries declined and gold extended Tuesday’s drop, as Congress appeared closer to a deal to avert a government shutdown after Jan. 19

All major equity gauges were higher, with semiconductor companies leading gainers, but they still lagged the highs touched on Monday. The S&P 500 Index climbed after Bank of America Corp. beat estimates and indicated that it could benefit from the U.S. tax overhaul by reducing pressure to cut future costs. Investors shrugged off Goldman Sachs Group Inc.’s disappointing earnings report, which had been anticipated, and focused on the firm’s improved outlook for 2018.

“We’re all really trying to figure out the real impact off tax reform on some of the major sectors,” said Jamie Cox, a managing partner for Harris Financial Group in Richmond, Virginia. “Financials in particular have been in the news because you’ve seen some weird things with some of their deferred tax assets being reported in earnings. I think a lot of people misunderstood and don’t understand how the deferred tax assets work, and so they’re seeing these massive charges that the banks are taking as a result of tax reform and they can’t see too clearly into the future about how much the impact on tax reform is going to have on their bottom line three quarters from now.”

The Stoxx Europe 600 Index was down slightly. Support came from the weaker euro, which was dragged down by some verbal intervention from the ECB, while the yen and Swiss franc were among the other major currencies falling against the greenback. Bitcoin dropped below $10,000 for the first time since Dec. 1.

Traders appear to be taking a pause, perhaps questioning the pace of gains in global equity markets since the start of 2018. But money managers still expect the rally to continue - particularly as analysts predict growth of 11 percent in earnings per share over the next two years, according to Bloomberg Intelligence calculations.

“A lot of the move that we’ve been seeing has been just the beginning,” said John Stoltzfus, chief market strategist at Oppenheimer & Co. “It’s hard to quantify, but we see some evidence of bull market bears as well as skeptics of this bull market finally beginning to capitulate. And when that capitulation starts, it’s a process.”

Meanwhile bond investors are mulling the potential for monetary policy in the U.S. to tighten faster than expected, and settling their nerves after last week’s selloff. The notion of a bear market doesn’t seem to have endured -- the yield curve steepening barely lasted a day.

Elsewhere, West Texas crude slipped before U.S. government data forecast to show stockpiles fell for a ninth week.

Terminal users can read more in our markets blog.

Here’s what to watch out for this week:

• U.S. housing starts probably slipped in December for the first time in three months as frigid winter weather impeded work, forecasts show ahead of Thursday’s release.
• The Bank of Canada’s interest-rate decision comes Wednesday. Monetary policy announcements are also this week due in South Korea, South Africa and Turkey.
• China releases fourth quarter GDP, December industrial production and retail sales Thursday.

And these are the main moves in markets:

Stocks

• The S&P 500 was up 0.5 percent to 2,791.33 as of 12:07 p.m. in New York.
• The Stoxx Europe 600 Index slid 0.1 percent.
• The U.K.’s FTSE 100 Index dipped 0.4 percent to the lowest in more than a week on the largest decrease in more than a week.
• The MSCI All-Country World Index added 0.3 percent.
• The MSCI Emerging Market Index climbed 0.3 percent to the highest in almost 10 years.

Currencies

• The Bloomberg Dollar Spot Index increased less than 0.1 percent, the first advance in more than a week.
• The euro slid 0.2 percent to $1.223, the largest decrease in more than a week.
• The British pound gained 0.3 percent to $1.3827, the highest since June 2016.
• The Japanese yen dipped 0.3 percent to 110.81 per dollar, the first retreat in more than a week.

Bonds

• The yield on 10-year Treasuries gained two basis points to 2.5592 percent.
• Germany’s 10-year yield was little changed at 0.562 percent.
• Britain’s 10-year yield added less than one basis point to 1.308 percent.

Commodities

• West Texas Intermediate crude rose 0.4 percent to $63.97 a barrel.
• Gold fell 0.4 percent to $1,333.79 an ounce.

— With assistance by Adam Haigh, Cormac Mullen, and Samuel Potter