Stock Market Today: Dow Jumps, Tesla Gains, Kellogg Surges

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The stock market bounced back partially on Tuesday after getting crushed last week as no news proved to be good news. Investors can only hope the rally will last.

The

Dow Jones Industrial Average
rose 643 points, or 2.2%, while the

S&P 500
gained 2.5% and the

Nasdaq Composite
advanced 2.5%. This comes after a quiet weekend of news.

“Today, there’s no fundamental reason for the rally,” said Brad Neuman, director of market strategy for Alger. “Things were oversold. Sellers were exhausted and we got a bounce.” 

The lack of news over the weekend was certainly a welcome sight for investors, who watched stocks sell off last week. Each of the three major indexes fell at least 4% as the Federal Reserve revealed a more aggressive interest rate hiking plan.

That ignited fears that rising rates—designed to stamp out still-high inflation—will put the U.S. economy into a recession. At the very least, that it will cause economic growth to slow down. 

As a result, the stock market has looked “oversold,” enabling Tuesday’s bounce. Entering the day, more than 90% of S&P 500 stocks were below their 50-day moving averages, according to 22V Research, meaning that portion of stocks were trading below a recent price trend. That makes investors willing to buy many names that might have a bright future, despite factors in the near term that threaten profits and valuations. 

Consistent with the momentary appetite to take on risk, many equity funds look positioned to do some buying. Many have built up sizable short positions in the market, wrote NatAlliance Securities’ Andrew Brenner.

If true, that means those funds had bet that stock prices would fall. They have fallen, which means that before they rise too much, those funds will buy shares back to lock in profits on their short positions.

Such short positioning—achieved through selling shares—wouldn’t have been much of a surprise, given that funds had raised a lot of cash. The average fund manager surveyed by Bank of America is holding about 5.6% of the portfolio in cash, which is above a long-term average. It’s another sign that funds have cash available to buy more stock.

“So there is room for a rally,” Brenner wrote.

And that rally remained in place throughout the day, even after Fed members spoke about tighter monetary policy.

On Monday, St. Louis Fed President James Bullard played down fears of a severe recession, saying that the U.S. economy should continue to grow in the coming several months. He did warn, however, that high inflation posed a serious risk to the U.S. economy.

Markets were monitoring comments from Cleveland Fed President Loretta Mester, who began speaking at noon. Richmond Fed President Tom Barkin spoke at 3:30 p.m. and said he, too, expects aggressive rate hikes upcoming. Ideally, markets would like to hear in upcoming Fed meetings that the Fed is able to cool inflation without causing a recession, though the odds of that have decreased slightly. Fed chair Jerome Powell will testify to Congress about monetary policy Wednesday morning.

“The Fed is hawkish—meaning the Fed is going to accept recession risk to deliver below trend economic growth,” wrote Dennis Debusschere, founder of 22V Research. 

That means the stock market’s focus has to be on what the Fed’s rate hikes will do to earnings. Though the market has fallen a lot this year, analysts have been reluctant to revise their earnings estimates lower. In fact, earnings per share expectations for S&P 500 companies, in aggregate, have risen this year, according to FactSet, despite the worsening economic outlook. Earnings for the index could see a roughly 8% drop this year, according to Evercore strategists, who point to the average drop in EPS estimates during the last three recessions. 

It’s those earnings that will ultimately determine whether the rally has legs—or is just another opportunity to sell on the bounce.

Here are some stocks on the move Tuesday:

Twitter

(ticker: TWTR) rose 3%. Elon Musk told an audience at the Qatar Economic Forum in Doha that he would be “driving the product” at

Twitter
,
while reiterating that he doesn’t necessarily want to serve as CEO after he completes the acquisition of the social media company.

Tesla

(TSLA) gained 9.4% after Musk told Bloomberg that job cuts at the electric-vehicle company would result in a reduction of as much as about 3.5% of

Tesla
’s
total head count.

Kellogg

(K) surged 2% after the cereal and snack giant announced plans to split into three independent companies.

Mondelez

(MDLZ) gained 1.7% after announcing that it would acquire energy bar maker Clif Bar for about $2.9 billion.

Exxon Mobil

(XOM) stock gained 6.2% after getting upgraded to Outperform from Neutral at Credit Suisse. 

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Joe Woelfel at joseph.woelfel@barrons.com