Dow Pares Gains, S&P 500 Declines

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The Dow Jones Industrial Average rose more than 100 points Wednesday, on pace for a record close, as investors begin shifting their focus to the latest earnings-reporting season, starting with the biggest banks.

Goldman Sachs Group accounted for a significant chunk of the blue-chip index’s gain after the bank reported sharply higher profits for the first quarter, benefiting from a turbocharged market and an economic recovery.

Energy stocks also rose, giving the stock market an added boost, after the International Energy Agency on Wednesday raised its forecast for annual global oil demand, sending crude oil prices higher. And shares of other companies tied to the reopening play rebounded from Tuesday’s losses following U.S. health authorities recommending a pause on the rollout of Johnson & Johnson’s Covid-19 vaccine.

Goldman and other bank stocks including JPMorganChase and Wells Fargo kicked off the first-quarter earnings reporting season Wednesday. Investors say they are optimistic about the biggest American companies’ earnings and outlook for the rest of the year, given the projections for a sharp economic recovery.

Sizable government stimulus measures and repeated pledges from the Federal Reserve to continue supporting the recovery have largely helped alleviate concerns about the pace of the reopening and the vaccination rollout.

The listing of Coinbase, the largest bitcoin exchange in the U.S., introduces a new way to invest in cryptocurrencies. WSJ explains how Coinbase is trying to distance itself from the risks of bitcoin to succeed on Wall Street. Photo illustration: George Downs

“As the fundamentals emerge in the weeks ahead, there should be some really eye-catching earnings data coming through and some very strong economic data,” said Paul O’Connor, head of a multiasset team at Janus Henderson Investors. “It is about working out whether the fundamentals are strong enough to justify what we have seen markets do.”

Analysts’ projections back that up that outlook. Wall Street’s forecasters predict the S&P 500 will grow first-quarter earnings 27% from the same period a year earlier, according to FactSet. That is sharply higher than the nearly 4% profit growth the S&P 500 clocked in the fourth quarter of last year.

On Wednesday, the Dow pared its gain following the release of a Federal Reserve report, which said economic activity had accelerated to a moderate pace in late February. The blue-chip index was recently up 130 points to 33807, keeping it on pace to top its Apr. 9 closing record.

Losses across tech and communication stocks, the market’s heavyweights, widened after the Fed report, known as the Beige Book, and dragged the S&P 500 and Nasdaq Composite into the red. The broad S&P 500 was down 0.2% in recent trading, while the Nasdaq Composite slipped 0.6%.

But gains across financial and energy stocks, as well as shares of companies expected to benefit from a rebounding economy, pushed the Dow higher and shielded the S&P 500 from a deeper decline.

Goldman shares rose 3.3% after disclosing better-than-expected results for the first quarter, while Wells Fargo advanced 5.5% after the bank also topped analysts’ earnings projections.

JPMorgan, however, ticked lower, shedding 1.2% after the bank said that first-quarter profit nearly quintupled following the release of $5.2 billion it had set aside to cover soured loans.

Still, the KBW Nasdaq Bank Index of big lenders, added 1.6%.

Other large American businesses will report profits through the week.

“There has never been more bullish expectations on what investors think they are going to hear from companies,” said David Donabedian, chief investment officer at CIBC Private Wealth Management. “With earnings season, you get a lot of buy-the-rumor, sell-the-news, and there is this idea that we are going to get a blowout first quarter.”

Energy stocks were the best-performing sector on a percentage basis, rising 3% in recent trading. The sector got a boost after brent crude oil prices rallied more than 4.5% following the IEA forecast.

Shares of airliners, cruise-ship operators and hotel chains–part of the reopening trade–also rose. United Airlines added 1.2%, Marriott International gained 1.4% and Royal Caribbean Group advanced nearly 1%.

Investors also got more clues on how the Federal Reserve will eventually scale back some of the fiscal stimulus it had injected into financial markets at the onset of the Covid-19 pandemic.

Speaking at virtual event held by the Economic Club, Fed Chairman Jerome Powell said the central bank will begin reducing bond purchases “well before” raising interest rates. He added the Fed is unlikely to raise rates this year

The yield on the 10-year Treasury note edged higher to 1.641% from 1.622% on Tuesday. Yields rise as prices fall.

Also in Wednesday’s trading mix was the public listing of Coinbase Global. Shares of the cryptocurrency exchange operator opened at $381 and were recently up 48% from their $250 reference price.

Overseas, the Stoxx Europe 600 gauge edged up 0.2%. In Asia, major stock indexes ended the day mostly higher. Hong Kong’s Hang Seng Index rose 1.4%, and the Shanghai Composite Index rose 0.6%. Japan’s Nikkei 225 fell 0.4%.

Traders worked on the floor of the New York Stock Exchange on Tuesday.

Photo: Nicole Pereira/Associated Press

Write to Will Horner at William.Horner@wsj.com and Michael Wursthorn at Michael.Wursthorn@wsj.com

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