Stocks rise as Morgan Stanley and CSX surge on earnings

  • Morgan Stanley shares rose 1.8 percent after the company reported better-than-expected earnings and revenue for the previous quarter.
  • CSX also posted stronger-than-forecast profits and sales, sending its shares higher by 7.1 percent.
  • Their gains lifted the broader banks and transports sectors.

Stocks rose on Wednesday as Wall Street cheered strong quarterly results from Morgan Stanley and CSX.

The Dow Jones Industrial Average rose 79.40 points to close at 25,199.29, with UnitedHealth and American Express outperforming. The S&P 500 climbed 0.2 percent to 2,815.62 as financials rose 1.5 percent. The Nasdaq Composite closed marginally lower at 7,854.44.

Morgan Stanley shares rose 1.8 percent after the company reported better-than-expected earnings and revenue for the previous quarter, boosted by strong trading and investment banking revenue. Bank of America, Citigroup, and J.P. Morgan Chase all closed higher as well.

"After what appeared to be a slow start for the bank earnings, it does appear that they are building back on the momentum they had when rates were starting to break out," said Dan Deming, managing director at KKM Financial.

CSX also posted stronger-than-forecast profits and sales, sending its shares higher by 7.1 percent. Its gains propelled the industrials sector to a 1.1 percent rise and sent the Dow Transports up by 2.3 percent. United Continental also surged 8.8 percent on stronger-than-expected earnings.

American Express, eBay and IBM are among the companies scheduled to report earnings after the close.

Wall Street has high hopes for this earnings season, with analysts at FactSet expecting S&P 500 earnings to have grown by 20 percent in the second quarter. With just over 9 percent of S&P 500 companies having released their latest quarterly results, earnings have grown 22.1 percent.

"We expect this to continue, but I think we have to focus on the guidance," said Quincy Krosby, chief market strategist at Prudential Financial. "We're about to hear from several large multinationals and we have to listen to what they say about capex and tariffs."

The gains in banks and industrials offset a mixed performance by some of the popular large-cap tech names. Netflix fell 1.2 percent, slipping for the second day in a row after posting weaker-than-expected subscriber growth for the previous quarter. Amazon shares fell 0.1 percent after Prime Day concluded.

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U.S. housing starts fell 12 percent in June to a nine-month low, the Commerce Department said. The percentage drop was also the biggest since November 2016. According to Bespoke Investment Group, it was the biggest miss relative to expectations since January 2007. Mortgage applications also fell 2.5 percent last week, the Mortgage Bankers Association said.

Homebuilding stocks fell on the back of the data. The iShares U.S. Home Construction exchange-traded fund (ITB) dropped 0.3 percent, as KB Home fell 2.2 percent.

Housing starts “missed substantially,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “Does it change the overall picture in the housing market? Not yet, but if we see the numbers getting worse, then that could impact the market.”

The data come after an upbeat assessment on the U.S. economy from Federal Reserve Chairman Jerome Powell. The head of America’s central bank also downplayed the impact of global trade risks on the outlook for future rate hikes.

Larry Kudlow, President Donald Trump's top economic advisor, said Wednesday at CNBC's Delivering Alpha conference that economic growth could reach 4 percent "for a quarter or two."