World Economy

Stocks Rally on Upbeat Earnings

Stocks Rally on Upbeat EarningsStocks Rally on Upbeat Earnings

Stocks bounced back in a powerful upswing that saw the Standard & Poor’s 500 index soar 4.1%. The rise erased the deep losses of the previous week and then some. Equity markets around the world joined in the rally, up about 2%, Barron’s Online reported.

“Investors were buoyed by a combination of sentiment improving on better global economic figures and solid US third-quarter earnings results,” said Yousef Abbasi, a market strategist at JonesTrading.

In particular, the market was bolstered by profit reports from some of the biggest industrial names, continued good US macroeconomic numbers, and better-than-expected—if still unimpressive—euro-zone and Chinese data.

In general, the third-quarter earnings season has shown healthy growth. With over 40% of the S&P 500 components reporting, some 75% have beaten earnings-per-share expectations and 60% revenue projections, above the five-year average, according to John Butters, an analyst with FactSet. EPS growth has averaged 7.1% and sales 5.1%.

The Dow Jones did not do as well as the S&P. It rose 425 points or 2.6% to 16,805.41. The S&P 500 index gained 78, or 4.1%, to 1964.58. The Nasdaq Composite index added 225, or 5.3% to 4483.72, while the Russell 2000 picked up 3.4% to 1118.82. The MSCI World Index excluding the US rose 2.2%.

The Chinese October flash HSBC/Markit manufacturing purchasing managers’ index (PMI) inched up to 50.4 from 50.2 the previous month. Markit said its composite euro-zone PMI rose to 52.2 from 52 in September. Neither rise was big, but the upward direction surprised investors.

Market sentiment still appears fragile after the roller-coaster rides of recent weeks. There’s likely to be further volatility. It’s fair to ask what might have happened to stocks last week if the poor earnings figures had mostly followed the stronger ones instead of preceding them.

Looking ahead, investors will be following Sunday’s release of stress test results on euro-zone banks by the European Central Bank. Brazil holds elections the same day, which could influence emerging markets this week.

Japanese shares rose to a two-week high as the weaker yen lifted exporters, while renewed fears about the spread of the Ebola virus in the US bolstered Ebola-related stocks such as Fujifilm Holdings Corp. The Nikkei share average ended 1.0 percent higher to 15,291.64, the best closing level since October 10.