Stocks rally as investors assess more earnings

US stocks rose sharply Tuesday as investors evaluated another round of company earnings.

The benchmark S&P 500 index gained 2%, while the Dow Jones Industrial Average jumped 510 points, or roughly 1.7% as of 12:25 pm ET. The tech-heavy Nasdaq Composite climbed 2.3%.

Housing data from the Commerce Department out Tuesday showed new US home-building activity fell 2% in June to the lowest level since September 2021 as new construction projects also abated, the latest signs of rising mortgages and high home prices are beginning to weigh on the once-hot housing market.

On the earnings front, second-quarter results from companies including Johnson & Johnson (JNJ), Truist Financial (TFC), and Lockheed Martin (LMT) arrived on Tuesday morning, with Netflix (NFLX) in the spotlight after the closing bell. Shares were up nearly 4% ahead of the report despite expectations that inflation, increased competition, and an uptick in subscriber churn will be apparent in results.

Johnson & Johnson reported earnings for the period that beat analysts’ estimates but cut its full-year sales and profit outlook, pointing to the impact of a stronger US dollar. Shares were little changed on Tuesday.

Meanwhile, IBM (IBM) stock tumbled 6.6% despite an earnings beat after the software giant trimmed its forecasts for free cash flow this year, citing currency headwinds and loss of business in Russia.

Of the 35 S&P 500 companies (comprising 10% of the index) that reported second quarter results as of July 15, 43% of companies beat on sales and earnings per share – weaker than the historical post-week 1 average of 47% and the weakest share since the first quarter of 2020, according to data from Bank of America Research.

Another 16% of companies are scheduled to report through Friday, including tech giants Tesla (TSLA) and Twitter (TWTR) later this week as earnings broaden out past banks to 11 other sectors.

INDIA – 2022/07/07: In this photo illustration, a Tesla logo is displayed on a smartphone screen with Elon Musk Twitter page in the background. (Photo Illustration by Avishek Das/SOPA Images/LightRocket via Getty Images)

“We expect second-quarter EPS to ‘meet’ at best, with a flurry of downward revisions,” BofA analysts said in a note Monday, adding that details on a few key topics take importance: demand outlook, pricing power, foreign exchange markets , and layoffs.

Federal Reserve officials have signaled they are likely to raise interest rates by 75 basis points at their next policy-setting meeting July 26 and 27 after government data last week showed US consumer prices in June accelerated at the fastest annual pace since November 1981.

The Fed should “communicate with the public that there’s only so much that they can do, especially for near-term inflation relief,” Allspring Global Investments Senior Investment Strategist Brian Jacobsen told Yahoo Finance Live. “If there is one lesson from history, it’s that if the Fed wants to tame inflation really quickly, the only way they can do that is by taking really extreme moves – it would have to be some sort of shock and awe number that would be economically devastating, so I don’t think they’d like the collateral damage.”

Tuesday’s moves come after a rally in the previous session was reversed in the final hour of trading amid a report from Bloomberg News that indicated Apple (AAPL) plans to slow hiring and curb spending next year in preparation for a potential economic downturn.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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