U.S. stocks leaped to their biggest gain in six months Tuesday following strong earnings from major financial and healthcare companies as well as encouraging reports on the economy. The Dow Jones industrial average jumped 547 points.
Morgan Stanley, Goldman Sachs and UnitedHealth led a parade of companies that reported third-quarter profits that beat analysts' expectations. Technology stocks continued their rebound from last week’s rout. After markets closed, Netflix rallied on a surge in net subscribers and semiconductor equipment maker Lam Research Corp. delivered a better-than-expected forecast for profit and sales.
The Standard & Poor’s 500 index climbed 59.13 points, or 2.1%, to 2,809.92. That was its largest gain since March 26. The Dow climbed 547.87 points, or 2.2%, to 25,798.42.
The S&P 500 is now up about 3% since closing on Thursday at its lowest in more than 14 weeks. That followed a gut-wrenching two-day sell-off in which the index plunged 5%, as bond yields jumped and investors worried that a rapid increase in interest rates would slow economic growth.
The Nasdaq composite jumped 214.75 points, or 2.9%, on Tuesday to 7,645.49 as technology companies reversed some of their outsize losses from the last few days. The Russell 2000 index of smaller-company stocks had its biggest rally in almost two years, surging 43.74 points, or 2.8%, to 1,596.84.
Investors were encouraged by some good news on the economy. The Labor Department said U.S. employers posted the most jobs in two decades in August while hiring continued to increase. The Federal Reserve said output by U.S. factories, mines and utilities climbed in September despite the effects of Hurricane Florence.
“The third quarter, which is now underway, would be the first sign if you’re looking for a smoking gun for either tariffs or tightening conditions,” said Jurrien Timmer, director of global macro at Fidelity Investments. “People at this point want to be relieved or are feeling that things aren’t as bad as last week suggested.”
Scott Wren, senior global equity strategist for the Wells Fargo Investment Institute, said the industrial production report suggests inflation isn't speeding up. He said investors took that as a sign the Fed won't accelerate its interest rate increases.
“Anything that helps the market think that the Fed won't make a mistake is good,” Wren said.
Although investors' fears about rising rates and inflation seem to have eased, trading in October has been very volatile. Before that, the third quarter was marked by the type of calm, steady gains seen throughout 2017. The last time U.S. stocks suffered a notable slide was in March, and strong corporate earnings helped start a turnaround after that.
Netflix shares soared 12% to $387 in aftermarket trading after the streaming-video company reported surprisingly strong summertime subscriber growth. That was a welcome change from the big losses it took after its second-quarter report, when it posted disappointing subscriber totals and gave a weak forecast. Netflix is up 80.5% this year, the fourth-best of any S&P 500 stock.
UnitedHealth, the largest U.S. health insurer and provider of privately run Medicare Advantage plans, once again beat Wall Street forecasts and raised its projections for the year. The stock climbed 4.7% to $272.57. That suggests other health insurers are likely to report strong results in the next few weeks. Cigna shares rose 3.9% to $211.96.
Healthcare products giant Johnson & Johnson rose 1.9% to $136.56 after it said prescription sales jumped.
Morgan Stanley climbed 5.7% to $45.94 and Goldman Sachs rose 3% to $221.70 after the two investment banks posted third-quarter results that beat expectations, helped by strong performance in their trading operations and better-than-expected revenue from stock underwriting. Morgan Stanley's stock has fallen 12% this year. Goldman’s has lost 13%.
Technology companies rose. Microsoft jumped 3.2% to $110.65. Adobe rallied 9.5% to $260.67 after it backed its fourth-quarter profit and revenue forecasts. The stock has jumped 49% this year, but had slumped in recent days. Alphabet, Google's parent company, rose 2.8% to $1,133.08.
On Wednesday, Canada will legalize marijuana nationwide. Although cannabis companies mostly traded lower Tuesday, the stocks have made huge gains this year in highly volatile trading. Tilray fell 4.4% to $158.38 on Tuesday. Canopy Growth slid 6.8% to $53.01.
Benchmark Capital analyst Mike Hickey started coverage of Tilray with a $200 price target Tuesday, saying the company’s supply deals with pharmacies and a partnership with drugmaker Novartis would help make it an early leader in the market. Hickey valued the Canadian cannabis market at about $3.2 billion in 2019 and predicted it will climb to $8.1 billion by 2023.
U.S. benchmark crude oil rose 0.2% to $71.92 a barrel in New York. Brent crude, the international standard, rose 0.8% to $81.41 a barrel in London.
Bond prices edged down. The yield on the 10-year Treasury note rose to 3.17% from 3.16%. Gold rose 0.1% to $1,231 an ounce. The dollar rose to 112.18 yen from 111.88 yen. The euro fell to $1.1578 from $1.1584.
Bloomberg contributed to this report.