Stocks rebound after a two-day slide as traders look past U.S.-China tension

Wild trading in an obscure Hong Kong-based fintech firm is turning heads on Wall Street and sparking conversations about meme stock mania again.

AMTD Digital saw its shares skyrocket 126% Tuesday alone after experiencing a series of trading halts. It’s a subsidiary of investment holding firm AMTD Idea Group, went public in mid-July with its American depositary receipts trading on the NYSE. Two weeks later, the stock is up 21,400% to $1,679 apiece from its IPO price of $7.80.

“As we’ve learned over the past two years, events like this cause what I would say is opportunities for profit but great risk for loss particularly for our retail investors,” Jay Clayton, former SEC chairman, said on CNBC’s “Squawk Box” Wednesday.

— Yun Li

Stocks were higher at Wednesday’s open, rebounding after two days of losses. The S&P 500 gained 0.73%, the Nasdaq Composite rose 1.19% and the Dow Jones Industrial Average increased 221.31 points, or 0.68%.

— Carmen Reinicke

OPEC and its allies on Wednesday agreed to raise oil production by a small amount, 100,000 barrels per day, in response to President Joe Biden’s trip to Saudi Arabia last month. During the visit, Biden had aimed to persuade the group’s leader to pump more oil to help the U.S. economy and global supply. The miniscule raise is seen as a rebuff.

— Carmen Reinicke

Shares of Starbucks gained nearly 2% in premarket trading after the coffee chain posted quarterly earnings Tuesday after the bell. The company beat expectations on earnings and revenue, boosted by U.S. demand for cold drinks even amid high inflation.

“We had actually record customer counts and record average weekly sales,” during the last quarter, Rachel Ruggeri, Starbucks chief financial officer, said on CNBC’s “Squawk Box.”

— Carmen Reinicke

Shares of Moderna rose nearly 4% in premarket trading after the covid-19 vaccine maker posted quarterly results that beat Wall Street’s expectations for both profit and revenue. In addition, the company announced $3 billion in share buybacks, and maintained its full-year outlook.

— Carmen Reinicke

This earnings season, results have generally come in higher than Wall Street’s expectations, showing that companies are faring current economic conditions better than analysts hoped, RBC head of U.S. equity strategy Lori Calvasina wrote in a Wednesday note.

“The good news for the US equity market is that evidence of resilience continues to be seen in corporate earnings,” Calvasina said. “The bad news for the US equity market is that the possibility of further downward earnings revisions remains a risk as we get deeper into the 2 nd half of the year.”

So far, estimates for earnings and revenue in the second half of 2022 and for the full-year 2023 have come down.

Still, the strength of corporate earnings this quarter may suggest that any upcoming economic downturn will be short and shallow, according to Calvasina. That’s good for stocks now, but could set them up for further volatility.

“That’s been supportive of stock prices over the past few weeks, but going forward it also tells us that the rally in stocks is fragile given the possibility of further downward earnings revisions as 2023 comes into view,” she said.

— Carmen Reinicke

Shares of CVS Health rose more than 3% in premarket trading after the company reported better-than-expected quarterly earnings before the opening bell. The company also lifted its earnings outlook for the year, saying health services is helping boost sales.

— Carmen Reinicke

House Speaker Nancy Pelosi left Taiwan on Wednesday after a visit that increased tensions with China and rattled financial markets a bit.

Pelosi met with Taiwan President Tsai Ing-wen on Wednesday. China, which considers the disputed island part of its territory, increased military drills in the Taiwan strait amid her visit. The S&P 500 is down about 1% this week as traders worried about the ramifications of Pelosi’s trip for China relations. But the market was set for a bit of a relief rally on Wednesday following her departure.

—John Melloy

Shares of AMD traded 5% lower in the premarket after the chipmaker issued third-quarter revenue guidance that was below analyst expectations.

AMD said it expects $6.7 billion in revenue for the third quarter, below a Refinitiv forecast of $6.82 billion.

The disappointing guidance overshadowed better-than-expected earnings and revenue for the second quarter.

—Fred Imbert

European stocks were mixed on Wednesday, continuing the cautious regional trend this week.

The pan-European Stoxx 600 slipped 0.2% in early trade, with autos falling 1.5% while tech stocks gained 1.2%.

It’s a busy day for earnings in Europe, with Commerzbank, SocGen, BMW, Banco BPM, Siemens Healthineers, Veolia and Wolters Kluwer among the companies reporting before the bell.

Shares of Czech cybersecurity firm Avast soared 42% after the U.K.’s competition regulator provisionally cleared its $8.6 billion sale to U.S. peer NortonLifeLock.

Despite the “parade of Fed speakers,” that’s not what investors should focus on, according to Art Hogan, chief market strategist at B. Riley Financial.

“I think that investors have to pay more attention to what the data is telling us than what every individual Fed speaker, whether they’re a voter or not, has to say about what our expectations should be,” Hogan told CNBC’s “Squawk Box Asia.”

Still, he said Fed officials have been able to shift expectations for where Fed policy is heading.

St. Louis Federal Reserve President James Bullard on Tuesday said the central bank will need to keep hiking rates, and the Fed funds rate likely will have to go to 3.75%-4% by the end of 2022. San Francisco Fed President Mary Daly said “our work is far from done” in fighting inflation, while Chicago Fed President Charles Evans said another large rate hike is possible, though he hopes it can be avoided.

After last week’s meeting, some expected the Fed would continue hiking to reach 3.25%-3.5% before pivoting in 2023, Hogan said.

“I think the parade of Fed speakers this week has done a pretty good job of pulling that back, tamping down those expectations,” he said.

— Abigail Ng

A slowdown could be on the horizon, and more earnings downgrades ahead have been predicted. If inflation also peaks, as some analysts expect it to, that mix of factors will favor one class of stocks, Jefferies says.

Jefferies produced a screen of such stocks that investors can buy, based on a list of metrics which include high profitability, reasonable valuations and good cashflows. Pro subscribers can read the story here.

— Weizhen Tan

PayPal shares soared by more than 11% after hours. The payments company beat analysts’ earnings and revenue estimates for the second quarter and issued upbeat full-year guidance. PayPal also announced a $15 billion share repurchasing program.

Stock buybacks provide a way for companies to boost their per-share earnings and enhance the value of their stock, particularly while the market across the board suffers steep price declines this year. The company kicked off a $10 billion program four years ago.

Elliott Management said it has a $2 billion stake in the payments giant. PayPal announced that it entered an information-sharing agreement on value creation with the activist investor.

— Tanaya Macheel

Leuthold Group chief investment strategist Jim Paulsen said that despite the Federal Reserve’s “ongoing lip service toward fighting inflation” by tightening monetary policy, there are several factors that suggest the market may be entering an “emerging easing cycle.”

Bond yields have achieved a sizable rate cut, the dollar is finally rolling over and junk spreads have pulled back, he said in a note to investors late Tuesday.

“The media, policy officials, and investors focus primarily on the war against inflation and how aggressively the Fed will need to keep hiking rates,” Paulsen said. “Yet, with real economic growth already reduced to a crawl and evidence building that inflation is easing, the case for further Fed tightening at its September meeting is rapidly falling apart.”

“Investors should place appropriate weight on the leading nature of economic policies,” he added. “Tightening today means lower real and nominal growth tomorrow.”

— Tanaya Macheel

Shares of the dating app operator Match Group tumbled as much as 23% after the company reported revenue of $795 million for the second quarter, compared with FactSet estimates of $803.9 million. Match also issued weak guidance around adjusted operating income and revenue for the current quarter.

— Tanaya Macheel