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Stocks Edge Higher as Earnings Season Marches On

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08/04/2020 | 05:01pm EDT

By Caitlin Ostroff and Dawn Lim

U.S. stocks rose Tuesday as investors held out cautious hope for progress in Washington over an aid package to support an economy roiled by a pandemic.

Investors are monitoring negotiations among Democratic leaders and White House officials on a new round of stimulus. The two sides remain at odds over whether to cut a $600-a-week federal jobless supplement or provide aid to financially strapped states and localities. Washington has been under pressure to iron out a deal since jobless supplements for millions of Americans expired.

The Dow Jones Industrial Average rose 164.07 points, or 0.62%, to 26828.47. The S&P 500 ticked up 11.9 points, or 0.36%, to 3306.51. The technology-heavy Nasdaq Composite edged up 38.368 points, or 0.35%, to 10941.17.

"There's a bit of a pause if you will, as investors are waiting for confirmation on what the shape of the stimulus will be," said Lori Heinel, State Street Global Advisors's deputy global chief investment officer. "Clearly the market is looking for another sugar rush."

Many investors are parsing through the toll of Covid-19, which left millions unemployed and battered profits for swaths of the economy. In recent weeks, gold has been one of the largest beneficiaries of a pause in other markets.

Front-month gold futures for August delivery gained $35.20 per troy ounce, or 1.79% to $2001.20 Tuesday on the Comex division of the New York Mercantile Exchange, marking a new record high.

Richard Bernstein, chief investment officer of Richard Bernstein Advisors, said that gold's march is one indication that investors are uncertain about whether stimulus measures by Federal Reserve and U.S. government will translate to a broader recovery.

"The market does view it as a good cushion," he said, "But it's very uncertain over how it works it way into the economy."

Investors face a host of unknowns, including whether a recent decline in new cases will hold up, and how aggressively states will be able to stem the spread of the virus.

"One day's data doesn't mean anything, but I'm looking at whether that's the beginning of a trend," said Fahad Kamal, chief market strategist at Société Générale's private banking and wealth management division Kleinwort Hambros.

Although the pandemic has crimped profits for many businesses, more than three-quarters of S&P 500 companies have reported earnings, with the majority beating analyst expectations, according to UBS. This has led estimates for the third quarter to rise by 2.5% since the end of June.

Robust earnings from tech companies have lifted U.S. stock markets higher in recent weeks. The advances by big tech stocks is acknowledgment by investors that certain companies have become major beneficiaries as people rely more on software, cloud computing and social media to stay connected and to work from home. In a sign of tech's rise, the industry made up at least 50% of the Nasdaq Composite for the first time since April 2012, according to Factset data as of Monday's close.

But the tech-heavy index showed only soft gains Tuesday, and lagged the Russell 2000 Index's 0.69% rise. This suggested that investors have questions about whether some tech names could be overpriced.

Facebook Inc. fell $2.13, or 0.85%, to $249.83. Alphabet Inc. declined $9.46, or 0.64%, to $1473.30. Microsoft was down $3.25, or 1.5%, to $213.29 amid uncertainty over whether it will be able to close a deal for U.S. operations of the hit video-sharing app TikTok. The deal would bring a Chinese technology crown jewel under U.S. ownership, but faces significant scrutiny in Washington.

Gaming companies got a boost. Shares in Take-Two Interactive Software Inc., the company behind Grand Theft Auto and other gaming franchises, rose $9.84, or 5.87%, to $177.52 after it raised financial projections for the year on higher demand for videogames during the pandemic. Activision Blizzard rose $1.66, or 1.96% to $86.45.

After the closing bell, Walt Disney Co. reported a quarterly loss of nearly $5 billion Tuesday due to a pandemic that has all but paralyzed its theme parks, live productions and cruise line.

Bond yields ticked lower. The yield on the 10-year Treasury declined to 0.514% Tuesday, from 0.562% Monday. Today's yield marks the second lowest this year for 10-year Treasurys.

"There's more truth in the bond market, and if you look at the yields they're still at record lows. There's still a very palpable sense of fear among investors that there could be tail risks that materialize," Mr. Kamal said.

In the Asia-Pacific region, Hong Kong's Hang Seng climbed 2%, leading gains in the region. Japan's Nikkei 225 gained 1.7%.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Dawn Lim at dawn.lim@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL -1.84% 27147.7 Delayed Quote.-4.87%
HANG SENG -0.81% 23747.17 Real-time Quote.-15.07%
NASDAQ 100 0.40% 10980.219627 Delayed Quote.25.24%
NASDAQ COMP. -0.13% 10778.79817 Delayed Quote.20.13%
NIKKEI 225 0.18% 23360.3 Real-time Quote.-1.25%
S&P 500 -1.16% 3281.06 Delayed Quote.2.75%
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