US close: Strong earnings from blue chips drive markets higher

(Sharecast News) - US markets rose on Tuesday with the Dow snapping a four-day losing streak as a raft of blue chips impressed the market with better-than-expected earnings. Traders were reacting positively to earnings from Spotify, General Electric, Coca-Cola, Spotify, 3M and General Motors, which all surpassed estimates with their third-quarter results.

According to data from FactSet, of the 23% of S&P 500 constituents that have already released results this earnings season, more than three quarters have beaten consensus forecasts.

The Dow Jones Industrial Average closed up 0.6%, the S&P 500 gained 0.7%, while the tech-heavy Nasdaq rose 0.9%.

Heavyweights Alphabet and Microsoft were in focus ahead of their results due out after the closing bell, with optimism rising high that the two giant tech stocks will continue their recent run, having risen 52% and 36% so far this year, respectively.

David Morrison, senior market analyst at Trade Nation, highlighted that the so-called Magnificent Seven - of which Alphabet and Microsoft are a part - have driven much of the stock-market gains so far this year. "The importance of these companies to the health of the major US stock indices can't be overstated. Just five companies, Alphabet, Microsoft, NVIDIA, Apple and Amazon account for around 25% of the market capitalisation of the S&P 500."

Investors were also digesting a small pick-up in private-sector activity, as shown in the S&P Global purchasing managers' indices (PMIs) released shortly after the opening bell. The S&P Global flash composite purchasing managers' index - which measures activity in the services and manufacturing sectors - rose to 51.0 from 50.2 in September. A reading above 50.0 indicates expansion, while a reading below signals contraction.

The manufacturing PMI ticked up to 50.0 in October from 49.8 the month before, hitting a six-month high. Meanwhile, the services business activity index came in at 50.9 this month, versus 50.1 in September.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "Hopes of a soft landing for the US economy will be encouraged by the improved situation seen in October. The S&P Global PMI survey has been among the most downbeat economic indicators in recent months, so the upturn in US output growth signalled at the start of the fourth quarter is good news."

Blue chips top forecasts

General Electric raised its full-year profit forecast for the third time this year on the back of strong quarterly earnings. The engineering giant said the boost in earnings was mainly due to robust demand for jet engine parts and services and improved performance in its renewable energy operations.

Spotify delivered a return to profitability in the third quarter after user and subscriber numbers beat expectations and revenues grew ahead of guidance. Monthly active users grew 26% to 574m, while subscribers increased 16% to 226m, with both figures coming in 2m ahead of guidance.

Soft drink behemoth Coca-Cola topped expectations on quarterly earnings and revenue in its latest report, with earnings per share coming in at 74 cents. That was well ahead of the 69 cents pencilled in by analysts surveyed by LSEG, while revenue reached $11.91bn, comfortably beating the expected $11.44bn.

American conglomerate 3M raised its earnings and cash flow guidance following a solid third quarter. 3M said the upgrade was a result if its "year-to-date performance and the continued strong operational execution".

General Motors delivered better-than-expected third-quarter earnings but the auto giant said it was pulling its annual guidance due to the impact of strikes. GM said it was withdrawing its guidance for the year due to volatility caused by strikes. It had previously guided to between $12bn and $14bn in adjusted earnings and net income attributable to shareholders of $9.3bn to $10.7bn.