U.S. stocks rose Wednesday as corporate earnings surprised to the upside and rosy service-sector data outweighed a disappointing jobs report from payroll provider ADP.

Reports of some progress in Congress toward a fresh coronavirus relief package also offered some gristle to the bulls early in the session.

The Dow Jones Industrial Average
US:DJIA
was about 353 points or 1.3% higher, near 27,182, while the S&P 500
US:SPX
gained 22 points, 0.7%, to trade near 3,328. The Nasdaq Composite index
US:COMP
added 36 points, 0.3%, and was trading near 10,977.

On Tuesday, the Dow picked up 164.07 points, or 0.6%, at 26,828.47; the S&P 500 index rose 11.90 points, or 0.4%, to 3,306.51, while the Nasdaq Composite Index finished 38.37 points, or 0.4%, to close at 10,941.17, marking its 30th record close of 2020.

What’s driving the market?

The stock market started strong Wednesday, supported by hopes for progress toward another fiscal relief package in Congress and better than expected corporate earnings results.

Late Tuesday reports suggested that, after more than a week of almost daily face-to-face meetings, Trump administration officials and congressional Democratic leaders are working to reach a coronavirus aid bill deal by the end of the week even if the parties are still far apart on the issues.

U.S. Treasury Secretary Steven Mnuchin told reporters on Capitol Hill of the new timeline late Tuesday. “We are pleased to report that although we still have a lot of open issues—I just want to be very clear, we’re not at the point of being close to a deal—but we did try to agree to set a timeline that we’re going to try to reach an overall agreement, if we can get one, by the end of this week, so that the legislation could be then passed next week,” he said.

Better-than-expected quarterly results late Tuesday from Dow component and entertainment and theme park giant Walt Disney Co.
US:DIS,
even though it reported a $3.5 billion loss, also helped to fuel some bullishness in markets. The company touted 100 million subscribers on its streaming platforms amid the pandemic and announced that it would be releasing the live-action version of “Mulan,” through Disney+ for $29.99, a new approach to that streaming service.

Separately, Teladoc Health Inc.
US:TDOC
and Livongo Health Inc.
US:LVGO
said Wednesday they have agreed to merge in a deal valued at $18.5 billion to create a company that can serve a spectrum of health needs, using virtual care.

Choppy market action over the previous few trading sessions is a healthy sign, said Andrew Smith, chief investment strategist of Dallas-based Delos Capital Advisors. “The market is sending a very clear signal that it’s trying to rotate into the cyclical economic recovery names,” Smith said in an interview.

“The baton hand-off never happens overnight,” Smith said. “It could take months. We see the catalyst coming from the dollar decline, which is a huge barometer of the global economic recovery. Days like Tuesday, instead of the market collapsing, there’s a bifurcation between the stay-at-home names and the recovery names.”

Smith believes that back-and-forth between the two regimes, pandemic darlings like Amazon.com Inc.
US:AMZN
and cyclical recovery stories, will continue for some time. “It’s a battle between leading economic indicators and lagging ones,” he said.

The final monthly reading of the closely-watched ISM service sector purchasing managers index jumped to a reading of 58.1 in July, beating expectations and signalling stronger economic growth.

Stock futures held early gains even after payroll provider ADP
US:ADP
said only 167,000 private sector jobs were created in July, a fraction of the consensus estimate for a gain of 1.88 million jobs, according to Econoday, though June was revised up to 4.3 million from 2.4 million. Separately, the trade deficit narrowed 7.5% in July to $50.7 billion.

“In one line: Ouch,” wrote Ian Shepherdson, Pantheon Macroeconomics’ chief economist, after the ADP release. Shepherdson said he takes some comfort in ADP’s spotty record of foreshadowing the Labor Department’s numbers, however. “The error should diminish again in July because ADP’s model incorporates lagged official payroll data, so we expect Friday’s report to show payrolls up by about 1 million.” That still leaves many millions of jobs lost to the pandemic, however.

The Federal Reserve’s No. 2, Richard Clarida, told CNBC that he’s sticking to his prior forecast of an improving economy over the remainder of the year. Cleveland Fed President Loretta Mester will also speak at a virtual event at 5 p.m.

Meanwhile, the U.S. and China said they have agreed to high-level talks on Aug. 15 to assess Beijing’s compliance with the bilateral trade agreement signed early this year, The Wall Street Journal reported on Tuesday. Relations have deteriorated in recent months, with the Trump administration hammering Beijing over the coronavirus outbreak, Hong Kong, and the treatment of Uighurs in western China. The negotiations between Microsoft Corp.
US:MSFT
to buy China-owned entertainment platform TikTok also has created some friction between the two superpowers.

On the public-health front, the global tally for confirmed cases of COVID-19 climbed above 18.5 million on Wednesday, according to data aggregated by Johns Hopkins University, and the death toll rose to 701,027.

Which stocks are in focus?
  • Shares of Humana Inc.
    US:HUM
    were up 3.2% after the health care services company reported second-quarter profit and revenue that beat expectations, while maintaining its adjusted earnings outlook.

  • CVS Health Corp. shares
    US:CVS
    dipped 1.2% in trade Wednesday, after the drugstore chain trounced estimates for the second quarter and raised its full-year guidance despite the impact of the coronavirus pandemic on its operations

  • Shares of Regeneron Pharmaceuticals Inc.
    US:REGN
    fell 1.6% after surging toward a record high in premarket trading Wednesday, after the biotechnology company reported second-quarter profit and revenue that beat Wall Street expectations, and said it expects clinical studies to remain generally on track in the face of the COVID-19 pandemic.

  • Lumber Liquidators Holdings Inc.
    US:LL
    reported Wednesday that it swung to a surprise second-quarter profit as sales fell less than expected, as sales trends improved through the quarter as markets reopened following COVID-19-related shutdowns. Shares were down 19%.

  • Moderna Inc.
    US:MRNA
    shares fell about 4.5% even though the company said it was moving ahead with Phase 3 clinical trials for a COVID-19 vaccine.

  • Shares of Wayfair Inc.
    US:W
    rose 2.4% Wednesday after the online seller of home furnishings and housewares swung to a big profit beat in the second quarter, citing “unprecedented demand.”

  • Wendy’s Co.
    US:WEN
    beat analyst expectations on its second quarter earnings, and the fast-food chain declared a dividend, but also declined to provide guidance. Shares lost 5.6%.

How are other markets trading?

The 10-year Treasury note yield
BX:TMUBMUSD10Y
rose 4 basis points to 0.55% after rosy economic data from the eurozone. Bond prices move inversely to yields.

Global equity markets were churning higher. The Stoxx Europe 600 index
XX:SXXP
was up 0.5% to 365.02, and the FTSE 100
FR:UKX
jumped 1.1%.

In Asia, China’s CSI 300 index
XX:000300
was flat and Japan’s benchmark Nikkei
JP:NIK
closed 0.3% lower.

The greenback slumped again, with the ICE U.S. Dollar index
US:DXY
down 0.9%.

Crude futures
US:CL00
surged 3.5% to $43.16 a barrel on the New York Mercantile Exchange, boosted in part by a decline in inventories. Gold futures for December
US:GCQ20
pushed 2% higher, to $2,041.70 an ounce, looking to set for a fresh record.



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