Wall Street closes higher, adding to gains after big rally

A choppy day on Wall Street ended with more gains for stocks Wednesday, as investors welcomed another batch of encouraging profit reports from U.S. companies.

The Standard & Poor’s 500 rose 0.6%, tacking more onto its big gains from a day earlier, when the benchmark index soared 2.8%, its best day in weeks.

The Dow Jones industrial average managed a modest 0.2% gain after recovering from a midafternoon pullback. The Nasdaq composite climbed 1.6%.

With the latest move higher, the major indexes are on pace for solid weekly gains.

“It’s not exactly the most robust day, but it’s nice to follow up on a day like yesterday,” said Ross Mayfield, investment strategist at Baird. “It feels like over the past couple of months good days have given it all back the very next day.”

Profit reporting season is ramping up, with more types of industries offering details about how high inflation and worries about a possible recession are affecting their customers. A lot is riding on whether they can continue to deliver healthy earnings.

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Stocks tumbled roughly 20% from their highs this year because of rising interest rates, and proof that profits can remain strong would provide a big support for markets. On the other hand, warnings about upcoming weakness could kick off another downward spiral.

For now, traders appear to be encouraged by what they’re hearing from companies, especially big banks.

“It wasn’t universal, but the broad takeaway from the big banks earlier is the consumer is doing all right. The data has confirmed that,” Mayfield said.

Companies have been mostly topping profit expectations so far this reporting season, as is usually the case, though the most recent reports were mixed.

Nasdaq, the company behind its namesake trading exchange, jumped 6.1% after delivering stronger profit and revenue than Wall Street expected. Omnicom Group, the advertising and public-relations company, rose 3.9% after better-than-expected earnings. Comerica, the Dallas financial services company, added 1.6% after it also reported stronger-than-expected results.

Netflix climbed 7.4% after it said it lost fewer subscribers during the spring than expected. But it remains the worst stock in the S&P 500 for the year, down by nearly two-thirds.

Beyond Netflix, several other tech-oriented companies made strong gains. Amazon climbed 3.9%, and Nvidia jumped 4.8%, which helped boost the tech-heavy Nasdaq.

On the losing end was Baker Hughes, which tumbled 8.3% after it reported weaker results for the spring than analysts expected. Northern Trust fell 4% after its profit fell short of forecasts.

All told, the S&P 500 rose 23.21 points to 3,959.90. The Dow added 47.79 points to close at 31,874.84. The Nasdaq advanced 184.50 points to 11,897.65.

Smaller-company stocks also closed higher. The Russell 2000 rose 28.62 points, or 1.6%, to 1,827.95.

In Europe, stocks slipped amid worries about whether Russia would restrict supplies of natural gas headed for the region after some maintenance on a key pipeline is scheduled to end Thursday. Germany’s DAX fell 0.2%, and French stocks dipped 0.3%.

The continent is also preparing for the first increase in interest rates by the European Central Bank in 11 years on Thursday, as it tries to beat back inflation.

The U.S. Federal Reserve has already raised rates three times this year, by increasing amounts each time. When the Fed meets next week, investors say, the only question is whether it raises its key rate by another 0.75 percentage point or opts for a full percentage point.

Expectations have recently been tilting toward the less-aggressive option, with traders seeing better than a 2-in-3 chance for a 0.75-point increase, according to CME Group. That could mean less pressure on stocks, particularly tech stocks and others seen as the market’s more expensive, which have swung sharply with changes in forecasts on what the Fed will do.

Such increases to rates make borrowing more expensive, which slows the economy. The hope is that the Federal Reserve and other central banks can deftly find the middle ground where the economy slows enough to whip inflation but not enough to cause a recession.

Some parts of the economy are already slowing because of the rate increases, particularly the housing industry. A report on Wednesday morning showed that sales of previously occupied homes weakened last month by more than economists expected. Higher mortgage rates are dragging on the industry, along with high prices for homes.

In the bond market, the yield on the two-year Treasury, which tends to follow expectations for the Fed’s actions, edged up to 3.25% from 3.24% late Tuesday. The 10-year yield rose to 3.03% from 3.01% late Tuesday.

— Associated Press business writer Elaine Kurtenbach contributed to this report.