(Reuters) – U.S. stocks rose on Tuesday, erasing much of the previous session’s steep drop, as December retail sales rose more than expected and investors digested earnings from major financial firms.
The S&P 500 suffered its biggest daily decline since November 7 on Monday as investors exercised caution amid a ream of negative corporate earnings outlooks that suggested the market may be vulnerable with indexes near record levels.
Retail sales increased 0.7 percent in December, excluding automobiles, gasoline, building materials and food services, a rise that was bigger than anticipated. It was the first major economic indicator since Friday’s payroll report, which was sharply under expectations.
“The retail sales are painting a better economic backdrop than payrolls did, and investors are using recent weakness as an opportunity to buy,” said Mike Gibbs, co-head of the equity advisory group at Raymond James in Memphis, Tennessee.
The S&P’s forward price-to-earnings ratio is the highest in nearly seven years, another sign investors may be more selective as the U.S. Federal Reserve begins to slow its stimulus, which contributed to massive gains in 2013.
Both JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co (WFC.N) posted earnings that beat expectations, though upside was limited with Wells near all-time highs and JPMorgan at its highest since 2000. JPMorgan gained 0.4 percent to $57.95 while Wells was up 0.3 percent at $45.70. The S&P financial index .SPSY advanced 0.8 percent.
“Financials are putting up strong numbers, and we should be able to put in a decent print this quarter, especially since expectations have been trending down,” said Gibbs, who helps oversee about $450 billion in assets.