Financial Market

US stocks rally as retailers post upbeat earnings

US stocks rallied on Thursday as investors were buoyed by strong earnings from domestic retailers Macy’s and Dollar Tree, easing concerns that consumer spending was slowing.

Midway through the session the S&P 500 was up 2.1 per cent, while the tech-heavy Nasdaq 100 advanced 2.9 per cent, shrugging off disappointing overnight earnings from chipmaker Nvidia.

The strong morning’s trading for American exchanges helped push European indices higher after a flat morning, with the regional Stoxx Europe 600 index ending the day up 0.8 per cent, while the FTSE 100 and Germany’s Dax 40 closed up 0.6 per cent and 1.6 per cent respectively.

Macy’s was the standout riser in the US after the department store raised its 2022 profit forecast, pushing its shares 15 per cent higher. Sentiment was supported by similar upbeat corporate earnings from discount stores Dollar Tree and Dollar General, which rose 18 per cent and 12 per cent respectively.

The statements collectively soothed investors’ worries over consumer spending, ignited last week by profit warnings from retailers Target and Walmart.

“The fact you get a major retailer telling a different story from what other major misses have told helps calm people down a bit,” said Jim Paulsen, chief investment strategist at The Leuthold Group.

Markets have been choppy in recent weeks as traders prepare for global central banks, led by the US Federal Reserve, to tighten monetary policy in an attempt to cool inflation even as concerns increase that global growth is faltering.

But investors hoped that a volatile period in the market was beginning to pass. “I don’t think you can say the bottom is imminent,” said Tim Graf, global head of macro strategy at State Street Global Markets. “But we have probably seen the most volatile period of drawdowns [of the stock market].”

In bond markets, the US 10-year Treasury yield gained 0.03 percentage points, in a sign that a recent rally in haven assets was losing momentum. Bond prices fall when yields rise. The ICE BofA Move index, which measures volatility in the Treasury market, hit 105.69, its lowest level since mid-March.

In a further sign of investors’ growing appetite for riskier assets, the JNK ETF, an exchange-traded fund of American companies’ high-yield “junk” bonds, rose 0.9 per cent. It is up 3.2 per cent so far this week.

Line chart of SPDR Bloomberg High Yield Bond ETF ($) showing Junk bonds in rebound rally

Investors shrugged off a mixed batch of US economic data. Revised figures showed the world’s biggest economy contracted at an annualised rate of 1.5 per cent in the first quarter, slightly worse than the previous estimate of 1.4 per cent.

The decline came as the US trade deficit widened, government spending declined and commercial inventory investment dipped, according to a report from the commerce department. However, consumption, a key component of US GDP, continued rising.

Meanwhile, first-time claims for unemployment benefits fell last week to 210,000, better than the consensus of 215,000 by economists polled by Refinitiv.

“The market is paying more attention to economic data. A few weeks ago it was all about inflation, not so much about other macro data. Now everything that could affect growth is important, especially all that’s related to consumption,” said Anne Beaudu, a global fixed income portfolio manager at Amundi.

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