Stocks swing as investors pore over corporate earnings

Shares struggled for direction in back-and-forth trading on Wednesday as a two-day rally spurred by a better-than-feared start to the earnings season faltered.

The S&P 500 (^GSPC) fell 0.3% after the index rose more than 4% over the past two days, while the Dow Jones Industrial Average (^DJI) gained 30 points, or 0.1%. The tech-heavy Nasdaq Composite (^IXIC) lost 0.4%.

Netflix (NFLX) took the spotlight after a big gain Tuesday afternoon that included 2.41 million new subscribers — a key metric being watched by analysts — more than double Wall Street’s estimate of 1 million new subscribers. Executives noted in the earnings statement that the company was “on track to re-accelerate growth” after a challenging first half. Shares rose 16%.

Elsewhere on the earnings front, shares of United Airlines Holdings (UAL) rose nearly 8% on Wednesday morning after the airline posted better-than-expected third-quarter earnings results on strong travel demand and a current-quarter earnings forecast that beat Wall reported road estimates.

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Strong reports from Netflix and United Airlines add to a slew of upbeat corporate results released earlier in the week by the likes of Goldman Sachs (GS) and Johnson & Johnson (JNJ).

Signage at the Netflix booth is seen on the convention floor of Comic-Con International in San Diego, California, United States, 21 July 2022.  REUTERS/Bing Guan

Signage at the Netflix booth is seen on the convention floor of Comic-Con International in San Diego, California, United States, 21 July 2022. REUTERS/Bing Guan

Though numbers have come in better than expected so far, of the companies that have reported third-quarter results so far, only 69% have actual earnings per share ahead of estimates — below the 5-year average of 77, according to FactSet Research %. And of those that beat estimates, earnings increases are 0.1% above estimates, well below the 5-year average of 8.7%.

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Many Wall Street strategists have stressed that valuations are yet to fully reflect the lower earnings associated with the current slowdown in economic growth, and point to future earnings forecasts that remain far too high.

“If, as we expect, Q3 earnings disappoint and future earnings expectations are turned down, we could see yet another slide for equities,” Gargi Chaudhuri, head of iShares investment strategy at BlackRock, said in a statement. “Don’t be fooled or chase these bear market rallies.”

“Obviously the market will eventually bottom, but until the Fed pivots or earnings are properly revised down, we think that time will come,” Chaudhuri said.

NEW YORK, NEW YORK - OCTOBER 18: Traders work on the floor of the New York Stock Exchange during morning trading on October 18, 2022 in New York City.  The stock market opened on a rebound, with the Dow Jones gaining over 600 points, the S&P 500 up 2.20% and the Nasdaq Composite up 2.6% to add to gains that began Monday.  (Photo by Michael M. Santiago/Getty Images)

NEW YORK, NEW YORK – OCTOBER 18: Traders work on the floor of the New York Stock Exchange during morning trading on October 18, 2022 in New York City. (Photo by Michael M. Santiago/Getty Images)

In commodity markets, oil prices rose on concerns that new European sanctions against Russia could further restrict supply. The Biden administration is expected to announce a plan to release 15 million barrels from US strategic reserves on Wednesday to slash gas prices. West Texas Intermediate (WTI) crude oil futures were up about 1.5% to trade at around $84 a barrel.

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Across the Atlantic, the UK continued a period of volatility as investors forecast double-digit inflation for September at 10.1%, putting into question a recent emergency move by the Bank of England to sell government bonds. The pound weakened and gilts fell.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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