Wall Street ends higher as earnings optimism outshines rising yields

April 19 (Reuters) – U.S. stocks ended higher on Tuesday, as investors used positive earnings to advance Wall Street’s main indexes and took relief from two U.S. Federal Reserve officials offering more dovish comments on interest rate rises than one of their counterparts.

Shares of megacap companies, including Microsoft Corp MSFT.O, Apple Inc AAPL.O and Amazon.com Inc AMZN.O, rose even as Treasury yields extended a recent surge. US/

Johnson & Johnson JNJ.N advanced to a record high, before pulling back slightly, as its quarterly profit exceeded market expectations and it raised its dividend payout. nL3N2WH21G

Of the 49 companies in the S&P 500 index that have reported quarterly earnings so far, 79.6% have exceeded profit estimates, as per Refinitiv data. Typically, 66% beat estimates.

“It certainly feels like every earnings season, especially since March 2020, is more important than the next, but particularly given where we sit in the economic cycle, the Fed’s rate hike cycle, and the elevated inflation backdrop,” said Max Grinacoff, equity derivatives strategist at BNP Paribas.

“So it all comes down to whether corporate earnings will remain resilient, in the face of what we have seen year-to-date geopolitically and with the U.S. economic picture. It will be a true test.”

Streaming giant Netflix Inc NFLX.O and IT firm International Business Machines Corp IBM.N both gained. The duo are set to report after the closing bell.

St. Louis Federal Reserve Bank President James Bullard on Monday repeated his case for increasing the rates to 3.5% by the end of the year to slow a 40-year-high inflation. He also said he did not rule out a 75 basis points rate hike. nL2N2WG1RV

Stocks appeared to brush aside the remarks, and the main indexes rallied further in late afternoon trading after both Chicago Federal Reserve Bank President Charles Evans and Atlanta Federal Reserve Bank President Raphael Bostic offered more dovish comments. nS0N2UR06H

Bond yields continued their recent moves higher though. The 30-year yield US30YT=RR exceeded 3% for the first time since April 2019. The 10-year tips < US10YTIP=RR> yield turned positive for the first time since March 2020, the start of the coronavirus pandemic. nL2N2WG1RV

“We typically assume higher yields should be beneficial for banks, but that correlation has broken down a bit and it’s been the sectors most negatively-correlated to rising rates – defensive sectors – which have actually rallied,” said BNP’s Grinacoff.

“We do think that is due to some recessionary fears starting to be priced in.”

According to preliminary data, the S&P 500 .SPX gained 72.36 points, or 1.65%, to end at 4,464.05 points, while the Nasdaq Composite .IXIC gained 287.13 points, or 2.15%, to 13,619.49. The Dow Jones Industrial Average .DJI rose 519.57 points, or 1.51%, to 34,931.26.

Most of the 11 major S&P subsectors were higher, led by consumer discretionary stocks .SPLRCD. Among the best performers in the index were gaming companies, with Wynn Resorts Inc WYNN.O, Caesars Entertainment Inc CZR.O and Penn National Gaming Inc PENN.O all posting strong gains.

Energy stocks .SPNY fell as oil prices tumbled 5.2% after the International Monetary Fund cut its growth forecasts for the global economy and warned of higher inflation. O/R

This year’s rally in crude prices, which are still up around a third despite Tuesday’s declines, helped Halliburton Co HAL.N post an 85% rise in first-quarter adjusted profit as demand for its services and equipment increased. However, the oilfield services firm’s shares were lower, amid the wider slump in energy stocks. nL3N2WH23Q

Travelers Cos Inc TRV.N also fell, despite the property and casualty insurer posting a better-than-expected quarterly profit. nL3N2WH20J

Meanwhile, Twitter Inc TWTR.N declined. More private equity firms have expressed interest in participating in a deal for the micro blogging site, according to reports. nL3N2WG2M9

(Reporting by Sruthi Shankar and Devik Jain in Bengaluru and David French in New York; Editing by Anil D’Silva and Arun Koyyur, Sriraj Kalluvila and Grant McCool)