US stocks snapped a two-day decline on Wednesday as corporate earnings and economic data came in better than expected. Treasuries trimmed losses as traders priced in further interest-rate hikes from the Federal Reserve. 

Solid reports from Moderna Inc. and PayPal Holdings Inc. pushed the Nasdaq 100 up as much as 3 per cent, taking it to a level last seen in May. The S&P 500 closed up 1.6 per cent. 

“Now that we’re 70 per cent through the earnings reporting season, we can clearly say that it’s not the earnings Armageddon that many had feared,” said Art Hogan, chief market strategist at B. Riley Wealth. “That’s important.”

The Treasury 10-year yield pushed past 2.80 per cent before falling to 2.70 per cent later in day as investors recalibrated expectations for the Fed’s rate-hike path. Recent data also eased concerns of a broader economic slowdown as growth in the US services sector unexpectedly strengthened to a three-month high in July.

Treasuries had rallied last week after Chair Jerome Powell signaled that the pace of future rate increases may slow later this year, boosting the odds for cuts next year in market-implied measures. But several Fed leaders have since said the central bank is far from done with tightening and remains laser-focused on tamping down price gains that are the hottest in four decades.

“If there is a change in tone by Fed members, it is similar to a parent that is finally telling the kids that you’ve had enough candy, no more,” wrote Peter Boockvar, chief investment officer at Bleakley Financial Group. “For decades the Fed always gave the markets more candy, especially when the kids cried out for it. Now, the kids are going to have to do without as long as inflation is at the very unsatisfactory levels that it’s pacing at, even with an expected fall.”

Markets are also somewhat calmer as US-China tensions simmered after House Speaker Nancy Pelosi left Taiwan. Her visit had provoked an angry response from China, and markets were on the edge ahead of her arrival on Tuesday. 

US stocks roared back on Wednesday after a session of many twists and turns the previous day. But equities trading doesn’t reflect the headwinds confronting the market, according to Goldman Sachs Group Inc. strategist Sharon Bell.

“There’s a little bit of complacency in there and markets are not fully taking into account the risks,” Bell said in an interview with Bloomberg TV.

Thin liquidity during the summer lull also tends to magnify small market moves, said April LaRusse, head of investment specialists at Insight Investments. 

“Sometimes that can make it look more exciting than it probably really is,” she said. 

The Cboe VIX Index also shows price swings are usually prevalent in the summer and early autumn. August and September are historically the two worst months for the S&P 500 Index.

Oil fell after a brief rally as traders mulled the lack of relief for oil markets and a poor demand outlook. The dollar pared gains after hitting a one-week high.

What to watch this week:

• BOE rate decision, Thursday
• US initial jobless claims, trade, Thursday
• Cleveland Fed President Loretta Mester due to speak, Thursday
• US employment report for July, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.6 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 2.7 per cent
• The Dow Jones Industrial Average rose 1.3 per cent
• The MSCI World index fell 0.8 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at US$1.0169
• The British pound fell 0.2 per cent to US$1.2149
• The Japanese yen fell 0.6 per cent to 133.94 per dollar

Bonds

• The yield on 10-year Treasuries declined five basis points to 2.70 per cent
• Germany’s 10-year yield advanced five basis points to 0.87 per cent
• Britain’s 10-year yield advanced four basis points to 1.91 per cent

Commodities

• West Texas Intermediate crude fell 3.7 per cent to US$90.97 a barrel
• Gold futures fell 0.4 per cent to US$1,782.10 an ounce