Wall St. Rebounds as Earnings Heat up, Short Worries Cool

U.S. stocks closed higher on Thursday, bouncing from sharp losses in the prior session, thanks to a broad rally as earnings season got off to a strong start and fears lessened around hedge funds selling long positions to cover shorts.

Heavyweights, including Microsoft Corp, Amazon.com and Alphabet Inc, were among the biggest boosts to the S&P 500, a day after the three major U.S. indexes suffered their biggest daily percentage drop in three months.

Apple reported holiday-quarter sales and profit that beat Wall Street expectations. However, shares of the iPhone maker fell 3.50% after climbing about 7% to start the year.

With quarterly earnings season in full swing, market participants have looked to whether companies could justify high valuations, with the forward price-to-earnings ratio on the benchmark S&P index near 20-year highs at almost 22.7.

“By and large the surprises have been positive, even more so than typical and by and large companies are showing positive operating leverage where they are able to grow earnings a little bit faster than they are able to grow revenue,” said Ellen Hazen, portfolio manager at F.L.Putnam Investment Management in Wellesley, Massachusetts.

“It is still early days where we are only a third of the way through the S&P but the surprises look more positive than usual and that bodes well as an outlook for the economy and for the markets.”

The Dow Jones Industrial Average rose 300.19 points, or 0.99%, to 30,603.36, the S&P 500 gained 36.61 points, or 0.98%, to 3,787.38 and the Nasdaq Composite added 66.56 points, or 0.5%, to 13,337.16.

Shares in GameStop Corp and AMC Entertainment Holdings Inc tumbled more than 40% after a meteoric rise in recent sessions in a social media-driven trading frenzy that shook stock markets. Trading platforms, including Robinhood and Interactive Brokers, restricted trading in several stocks that soared this week, easing concerns about a ripple effect to the broader market.

“Trading platforms are not going to want to stick their necks out and be on the frontline of what they may see as a reckless war, in part, against the elite and the system of Wall Street that’s being democratized by information and the social media,” said Eric Schiffer, chief executive officer of private equity firm the Patriarch Organization.