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US STOCKS-Wall Street Ends Higher as Earnings Optimism Outshines Rising Yields

Reuters2022-04-20

* U.S. 30-year bond yield hits 3%

* IMF cuts global growth forecast for 2022

* J&J hits record high after earnings

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, Apple Inc and Amazon.com Inc, rose even as Treasury yields extended a recent surge.

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

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."

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.

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.

Bond yields continued their recent moves higher though. The 30-year yield 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.

"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 gained 72.36 points, or 1.65%, to end at 4,464.05 points, while the Nasdaq Composite gained 287.13 points, or 2.15%, to 13,619.49. The Dow Jones Industrial Average 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. Among the best performers in the index were gaming companies, with Wynn Resorts Inc, Caesars Entertainment Inc and Penn National Gaming Inc all posting strong gains.

Energy stocks 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.

This year's rally in crude prices, which are still up around a third despite Tuesday's declines, helped Halliburton Co 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.

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

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

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