Stocks edged higher on Tuesday, rebounding from a rough week, as investors digested results from the new earnings season as well as signals for another big stimulus and faster pace of vaccine distribution ahead.
The Dow Jones Industrial Average rose 140 points, or 0.5%. The S&P 500 gained 0.6%, while the Nasdaq Composite jumped 0.8%.
Shares of Goldman Sachs erased earlier gains and last traded 1.5% lower as traders took profits after the bank topped expectations for fourth-quarter profit and revenue. The blowout results came on the back of strong performance from its equities traders and investment bankers.
Bank of America dipped 1% after the bank posted quarterly revenue that missed expectations. Earnings came in slightly ahead of estimates, however.
The first week of earnings season saw a historically high proportion of beats with 88% of the S&P 500 companies that reported exceeding EPS estimates, according to Bank of America.
While the earnings cycle started out strong, many on Wall Street believe fourth-quarter earnings have been priced in and the market is focused on the 2021 outlook and the ultimate size of fiscal stimulus that would translate into profit growth.
“We expect investors will look through 4Q results and focus on company commentary about the trajectory of recovery in 2021,” David Kostin, Goldman’s head of U.S. equity strategy, said in a note. “As investors look to 2021, policy remains a key driver for corporate profits.”
Janet Yellen, President-elect Joe Biden’s designated nominee for Treasury Secretary and a former chair of the Federal Reserve, appeared before the Senate Finance Committee on Tuesday. Yellen’s prepared remarks call for the federal government to enact a large stimulus to help the economy.
“Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big,” said Yellen in prepared remarks. “I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.”
Stocks are “likely poised to resume upside, after ending a healthy consolidation,” wrote Fundstrat’s Tom Lee in a note, citing an increase in the pace of vaccinations and eventual rollover in coronavirus cases.
Dr. Rochelle Walensky, Biden’s pick to lead the Centers for Disease Control and Prevention, said Sunday that she’s confident the U.S. will have enough vaccine doses to meet the incoming administration’s goal of inoculating 100 million people in 100 days.
Tuesday’s gains came after a slump for equities last week. The S&P 500 lost 1.5% for its first weekly loss in three, while the Dow and the Nasdaq Composite slid 0.9% and 1.5%, respectively, both posting their first negative week in five.
The market fell last week even as Biden unveiled his $1.9 trillion plan for economic relief as the country tries to get a handle on the Covid-19 pandemic. Biden is set to be inaugurated on Wednesday, with the National Guard in Washington amid heightened security concerns after a Jan. 6 riot at the U.S. Capitol.
“In the week ahead, global economic data and U.S. earnings reports will be plentiful, but what matters is whether President Elect Biden’s Inauguration on 1/20 occurs peaceably and whether Republicans in the Senate send signals of constructive cooperation or of a 2020 replay,” BTIG chief equity and derivatives strategist Julian Emanuel said in a note to clients on Sunday.
The U.S. stock market was closed on Monday in honor of Martin Luther King Jr. Day.
