Stocks Rally to Close Higher as Stimulus Expectations Grow

By Jack Denton, Nicholas Jasinski , and Jacob Sonenshine

Updated Feb. 2, 2021 4:27 pm ET / Original Feb. 2, 2021 6:09 am ET

Global stocks rallied on Tuesday, as a batch of strong earnings reports and continued signs of progress on the stimulus and Covid-19 fronts helped boost sentiment. Meanwhile, a social media-driven rally in speculative stocks including GameStop appeared to have run out of steam.

The S&P 500 surged 1.4%, adding to Monday’s 1.6% gain. The index ended last week down 3.3%, and lost more like 5% from the week’s intraday peak to trough. The Dow Jones Industrial Average rose 476 points, or 1.6%, on Tuesday, and the Nasdaq Composite also closed up 1.6%.

The passage of a fiscal stimulus and coronavirus-relief bill in the U.S. doesn’t appear imminent, but a $600 billion Republican counterproposal to President Joe Biden’s $1.9 trillion package at least presents a starting point in negotiations. Democrats may also proceed by passing the bill through a process known as reconciliation, which wouldn’t require any Republican votes. The consensus among investors and economists seems to be that there will be another round of stimulus sooner rather than later, but with the exact size and contents still up in the air. For now, that appears to be good enough.

“On that rosy note, the reopening path looks brilliant as new Covid-19 cases in the U.S. are slowing and vaccine rollout is accelerating,” said Stephen Innes, a strategist at Axi. “There could be upside risks to the markets’ U.S. fiscal stimulus assumptions—indeed the ingredients for a rapid global recovery from Q2 onward are getting sweetly baked into the cake.”

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U.S. Covid-19 cases and hospitalizations have continued their downward trend, with both daily figures returning to levels last seen in November in recent days. Vaccination progress remains slower than many had hoped for at this stage, but the U.S. nonetheless just crossed the symbolic milestone of having more people vaccinated than had been confirmed infected with Covid-19 since the start of the pandemic. And with vaccines from Johnson & Johnson and Novavax on the horizon, supply should ramp in the coming months.

In Asia, Tokyo’s Nikkei 225 ticked up 1%, while Hong Kong’s Hang Seng rose 1.2%. The Shanghai Composite Index lifted 0.8%. In London, the FTSE 100 closed up 0.8%. In Paris, the CAC 40 surged 1.9% higher and Frankfurt’s DAX jumped 1.6%. Those overseas markets were likewise continuing momentum from Monday to recoup more of last week’s losses.

Shares in several of last week’s short-squeeze rocket ships were burning up on re-entry on Tuesday. GameStop (ticker: GME) closed down 60% after falling more than 30% on Monday, AMC Entertainment (AMC) dropped 41%, and BlackBerry (BB) lost 21%. The stocks captured global attention after individual investors based on the Reddit group WallStreetBets helped catapult the share prices by triple-digits in the span of a week. But momentum works in both directions: GameStop is down some 83% from its intraday high last Thursday.

Also read: Reddit Dealt a Blow to Short Selling. But the Strategy Has Underperformed for Years.

Similarly, the retail-led rally in silver has subsided, after foreign exchange company CME Group hiked margin requirements on silver futures by 18% after reviewing market volatility. The precious metal had hit an eight-year high on Monday.

Plus:After 10 Years of Underperformance, Commodities Are Set to Boom. Here’s How to Play the Rally.

It’s a big day for U.S. earnings. Alphabet, Amazon, Amgen, and Electronic Arts were among the crowd reporting results.

United Parcel Service (UPS) stock gained 2.7% after shipping company’s fourth-quarter earnings report. It earned $2.66 in adjusted earnings per share from $24.9 billion in sales—up 21% year over year.

Pfizer (PFE) shares dropped 2.3%. The drugmaker’s adjusted earnings per share of 42 cents in the fourth quarter were below the 50 cents analysts expected, while revenues of $11.7 billion were modestly above consensus. Pfizer said Tuesday that it expects sales of around $15 billion from its Covid-19 vaccine in 2021, while analysts had been forecasting less than $13 billion.

Alibaba (BABA) shares fell 3.7%. The company posted earnings per share of $22.03, beating estimates of $20.94, on revenue of $33.8 billion, which also beat expectations.

BP (BP) dropped 6.6% after the oil producer posted earnings 3 cents a share, beating estimates for 2 cents a share, on revenue of $48.6 billion, missing expectations for $52.1 billion.

Exxon Mobil (XOM) shares jumped 1.6% after the company beat earnings expectations with a profit of 3 cents per share, ahead of the forecast for 1 cent per share. The company said revenue was $46.5 billion, missing estimates of $48.7 billion.

Palo Alto Networks (PANW) shares rose 7.2% after Credit Suisse upgraded the stock to Outperform from Neutral.

ON Semiconductor (ON) stock closed up 0.4% after Summit Insights upgraded the stock to Buy from Hold.