Market Snapshot: Dow futures jump 500 points on optimism over earnings reports

What’s driving markets

Wall Street was on course for a second day of gains as anxiety over the fixed income sector faded in the wake of the U.K. government’s budget U-turn on its fiscal policy.

Extra impetus came from news the Bank of England would delay its bond sale program, a move that highlighted central banks’ readiness to halt monetary tightening if needed. though the central bank said that story was “inaccurate.”

“The rally in gilts [U.K. government bonds] in recent trading sessions could put a near-term floor under broader fixed income. Further, the BoE postponing QT offers the potential for a decline in global rates volatility, a precondition for a broader improvement in cross-asset risk sentiment,” said Stephen Innes, managing partner at SPI Asset Management.

Also helping underpin sentiment has been a generally well-received start to the U.S. corporate earnings reporting season. Shares of Dow components Goldman Sachs Group Inc.
GS,
+2.24%
and Johnson & Johnson
JNJ,
+1.30%
saw strong premarket gains after delivering well-received earnings reports Tuesday. Investors were also weighing results from Lockheed Martin Corp.
LMT,
+2.03%
and, after the close, Netflix Inc.
NFLX,
+6.57%.

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Some analysts remained skeptical of the rebound’s longevity, however. Jonathan Krinsky, chief market technician at BTIG, noted that although the Nasdaq-100 gained more than 3% in the previous session, it had traded only within Friday’s range.

“That qualifies as an ‘inside day’. A 3% inside day is quite rare, and has happened just 9 other times when below its 200 DMA since inception in 1985. While stats, particularly those with small sample sizes, should never be used in isolation, we think the recent action is telling and has tended to occur in the midst of bear markets more than the start of new bulls,” said Krinsky.

He concluded: “We don’t think we are at the final end of this bear market, and therefore would be inclined to fade this rally.”

See: The Nasdaq-100’s surge on Monday failed this important test. Here’s what happened the last nine times.

Similarly, Mark Newton, technical strategist at Fundstrat, said in a note to clients that the recent market strength had not been enough to break either the one or two-month downtrend and that importantly, Treasury yields
TMUBMUSD10Y,
3.983%,
which closed on Monday above 4%, seem likely to break higher still.

“Overall, the ability to exceed early month peaks at 3825 [for the S&P 500] will be an important first step which would help to add conviction on rallies. At present, I suspect indices could be in for some additional volatile trading over the next week before officially bottoming,” Newton said.

Read: Fund managers ‘scream capitulation’ as cash levels rise to highest in 21 years, Bank of America says

The U.S. 10-year Treasury yield was down 0.7 basis point near 4%, ahead of September industrial production and capacity utilization rate data due at 9:15 a.m. Eastern Time. The NAHB home builders index for October will be published at 10 a.m.

There will be more talk from Federal Reserve officials, too. Atlanta Fed President Raphael Bostic is due to speak at 2 p.m. and Minneapolis Fed President Neel Kashkari will deliver remarks at 5:30 p.m.

Companies in focus

• Goldman shares rose 3.7% in premarket trade after the bank topped its third-quarter earnings and revenue targets and confirmed a reorganization plan. Goldman will again reorganize, dividing the bank into three operating segments: Asset & Wealth Management, Global Banking & Markets and Platform Solutions.

• Johnson & Johnson shares were up 1% after the drug and consumer products company reported third-quarter profit and sales that beat expectations.

• Lockheed Martin topped earnings expectations but fell short on revenue, while adding $14 billion to its share buyback authorization as it said it expects to execute a $4 billion accelerated share repurchase program in the fourth quarter. Shares rose 0.6%.

• Eli Lilly & Co.
  LLY,
  +0.41%
  said Tuesday it has entered an agreement to acquire Akouos Inc.
  AKUS,
  -5.14%,
   a company developing a portfolio of viral gene therapies for the treatment of inner ear conditions including hearing loss, for up to $610 million in cash. Akouos shares jumped 88%, while Eli Lilly shares were up 1.3%.

• Microsoft Corp.
  MSFT,
  +3.92%
  reportedly plans to cut nearly 1,000 jobs. Shares rose 2.6%.