Stocks jumped on Thursday as Wall Street recovered from a tumble in the previous session that sent two of the major indexes into the red for 2018.
The Dow Jones Industrial Average rose 401.13 points to 24,984.55 — snapping a three-day losing streak — as Microsoft outperformed. The S&P 500 gained 1.9 percent to close at 2,705.57 as consumer discretionary and tech both rose more than 3 percent. The broad index also closed higher for the first time in seven sessions. Both are back into the green for 2018, but barely.
The Nasdaq Composite climbed 2.95 percent to 7,318.34 as Amazon rallied 7.1 percent ahead of the release of its earnings report. A 3.4 percent jump in Facebook and a 3.7 percent gain in Netflix also lifted the Nasdaq.
“What happened yesterday was the market got way oversold,” said Tom Essaye, founder of The Sevens Report. “Was a decline on earnings warranted? Yes, but not 10 percent.”
“The market is now correcting that a bit,” Essaye said.
On Wednesday, the Dow plunged 608.01 points, erasing all of its gains for the year. The S&P 500 dropped 3.1 and also turned negative for the year. The Nasdaq fell 4.4 percent, entering correction territory.
These losses added to the indexes’ steep decline for the month. Through Thursday’s close, the Dow and S&P 500 were down 5.6 percent and 7.2 percent for October, respectively. The Nasdaq, meanwhile, had lost 9.1 percent. It’s going to be more volatile on Friday after Google-parent Alphabet and Amazon sliding after releasing their quarterly results.
“The technical picture has turned increasingly bearish this month,” said Ed Yardeni, president and chief investment strategist at Yardeni Research. “The percentage of S&P 500 companies trading above their 200-dmas was down to 37% after yesterday’s debacle.” DMA refers to daily moving averages, a common measure of trends on Wall Street.
He noted, however, that prior similar declines during this bull market have “marked buying opportunities.” Yardeni added: “If this is still a bull market, as we believe it is, then the latest bearish technicals and October’s swoon should mark the latest buying opportunity.”
Several factors have conspired to knock markets this month — some earnings disappointment, fear of rising interest rates, a brewing conflict betweenItaly and theEuropean Union over budget spending, criticism of oil powerSaudi Arabia after the killing of a dissident journalist and finally, worries that world growth is losing steam.
“Corrections like this are actually healthy for the market,” said Amanda Agati, co-chief investment strategist at The PNC Financial Services Group. “What is surprising to me is where the finger is being pointed at. It’s not clear to me that anything has changed in the last month.”
“This is much more of a sentiment shift than a fundamental shift,” Agati said.
Thursday’s bounce comes as several major companies posted strong quarterly results.
Microsoft reported earnings and revenue for the previous quarter that easily topped analyst expectations. The Dow component rose 5.8 percent on the news.
Tesla, meanwhile, posted a surprise profit, sending its shares up by 9.1 percent. Twitter also surged 15.55 percent on better-than-expected results. Not all quarterly reports were good, however. AMD shares tanked more than 15 percent after the company issued weak revenue guidance for the fourth quarter.
Thursday is the busiest day of the earnings season. Thus far, the corporate earnings season is off to a good start. S&P 500 earnings are up 24.8 percent so far, with 82 percent of the companies that have reported beating estimates, according to data from The Earnings Scout.
The data also show that earnings growth forecasts for the first two quarters are holding up nicely. As of Thursday morning, S&P 500 earnings were expected to grow by 8.44 percent in the first quarter of 2019, up from 8.39 percent on Wednesday. Expected earnings growth for next year’s second quarter also increased to 6.48 percent from 6.36 percent on Wednesday.
“Are actual earnings and changes in earnings expectations confirming such a steep drop in price? No,” said Nick Raich, CEO of The Earnings Scout, in a note. “While stocks got crushed yesterday, 1Q 2019 and 2Q 2019 S&P 500 EPS growth estimates went higher.”