The Dow climbed Tuesday, to end the month in the green as investors digested a slew of mostly better-than-expected results just as focus shifts to the Federal Reserve decision due Wednesday.
The Dow Jones Industrial Average gained 1.1%, or 368 points, ending the month with a gain of about 2%. The Nasdaq Composite closed 1.7% higher. The S&P 500 rose 1.4% notching its best January since 2019.
Consumer discretionary stocks led the market higher, led by a General-Motors-inspired surge in automakers.
General Motors (NYSE:GM) rallied more than 8% after its fourth-quarter results topped Wall Street estimates and the automaker delivered annual guidance that was less bad than feared.
“We believe this quarter from GM was a statement to the Street expressing that demand worries and supply shortages are a thing of the past and to shift focus on the massive opportunity ahead as GM continues chipping away at its transformational story,” Wedbush said in a note.
Consumer stocks were also pushed higher by a rally in PulteGroup (NYSE:PHM) to new 52-week highs after the homebuilder delivered better-than-expected fourth quarter earnings.
Tech, meanwhile, rebounded from its soft start to the week, as investors look to further results from big tech. Meta Platforms (NASDAQ:META) is set to report results on Wednesday, while Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), and Amazon.com (NASDAQ:AMZN) on Thursday.
In industrials, investors weighed up better-than-expected results from United Parcel Service Inc (NYSE:UPS) and Smith AO Corporation (NYSE:AOS) against a quarterly earnings miss from Caterpillar .
Caterpillar (NYSE:CAT) fell more than 3% after the heavy equipment maker’s fourth-quarter earnings fell short of Wall Street estimates, pressured by a strong dollar and higher costs during the quarter.
McDonald’s Corporation (NYSE:MCD), meanwhile, delivered quarterly results that beat on both the top and bottom lines, but worries over margins weighed on the stock after the fast-food giant said cost pressures were expected to persist in 2023.
In other news, PayPal (NASDAQ:PYPL) announced plans to lay off 2,000 employees, about 7% of its workforce as the payments company prepares for a “challenging macroeconomic environment.”
In economic news, consumer confidence fell in January to a reading of 107.1, as consumers grew less upbeat about job prospects and expected business conditions to soften in the near term.
The strong day of gains on Wall Street comes just as the Fed kicked off its two-day meeting, which is expected to culminate in a decision to slow the pace of rate hikes to 25 basis points.
Ahead of the meeting, some on Wall Street have suggested the Fed should consider pausing rate increases sooner rather than later after its next round of hikes.
“The Fed should maybe do another 25 basis points after the rate hike [on Tuesday] at the most [...] and then stop and see what happens,” Robert Conzo, CEO of The Wealth Alliance told Investing.com’s Yasin Ebrahim in an interview on Tuesday.
“The market is saying we’re good with a pause, but I’m not sure the Fed is going do that. If the economic data continues to support downward, they may hold off on the third. I think they should absolutely do that, Conzo added.”
However, that dynamic may be petering out, said Aaron Dunn, co-head of the value equity team at Eaton Vance.
“People have come back to energy in a big way,” he said. “We had that tailwind the last couple of years, which was that everyone was under-invested in energy. I don’t think that’s the case anymore.”
And while energy companies are expected to deliver strong quarterly reports over the coming weeks after a roaring 2022, those numbers may have set a high bar for this year.