Wall Street: Dow, S&P 500 gain on retail earnings boost; US yields rise

Walmart sees smaller profit drop this year; Home Depot beats sales estimates; US yields rise as retail data points to more Fed tightening

Strong earnings from Walmart and Home Depot helped drive gains in the Dow Jones and the S&P 500 indexes on Tuesday.

Walmart Inc shares rose 5.9% after the world's largest retailer also forecast a smaller drop in full-year profit than previously projected.

Home Depot Inc added 5.4% as it surpassed estimates for quarterly sales on steady demand from builders as well as price hikes.

The two heavyweight stocks contributed to the S&P 500 retail sector's 2.1% gain.

"These companies are beating reduced or at least modestly reduced expectations," said Jason Pride, CIO for private wealth at Glenmede.

"Arguably, it is unexpected to some degree to see the magnitude of EPS strength being seen this quarter and even the prior quarter in the face of the difficulty that consumers are facing on the inflation in the rising rate environment." So far, 77.6% of the S&P 500 companies that have reported results as of Friday have topped analysts' estimates, according to Refinitiv data.

Better-than-expected earnings from corporate America are helping U.S. equities recoup losses from a recent inflation-induced rout, with the tech-heavy Nasdaq index bouncing nearly 24% off its mid-June lows.

Meanwhile, the 10-year Treasury yield recovered to 2.84% as encouraging data from U.S. retail giants suggested that the Federal Reserve has room to further tighten financial conditions as it battles four-decade high inflation.

Traders are now seeing a 60% chance of a 50 basis-point hike by the U.S. central bank in September and a 40% chance of a 75 basis-point hike.

That rise in yields weighed on high-growth stocks such as Apple Inc and Alphabet Inc. 

"The back and forth in markets is heavily driven by changing expectations for rate hikes, which impacts stock prices," Pride added.

At 12:11 p.m. ET, the Dow Jones Industrial Average was up 248.32 points, or 0.73%, at 34,160.76, the S&P 500 was up 11.50 points, or 0.27%, at 4,308.64, and the Nasdaq Composite was down 20.10 points, or 0.15%, at 13,107.95.

Investor sentiment is still bearish, but no longer "apocalyptically" so, according to BofA's monthly survey of global fund managers in August.

Focus will be on retail earnings and retail sales data this week for more clues on the impact of inflation on consumer behavior.

Zoom Video Communications fell 4.2% after Citigroup cut its rating on the pandemic darling's stock to "sell".

Advancing issues outnumbered decliners by a 1.06-to-1 ratio on the NYSE. Declining issues outnumbered advancers for a 1.28-to-1 ratio on the Nasdaq.