U.S. Stocks Finish Higher After Choppy Trading Session

U.S. stocks advanced Tuesday after a late-afternoon rally helped indexes notch a three-day winning streak.

All three major indexes finished the day higher, shaking off the choppiness that largely defined the session. For most of the day, U.S. stocks swung between tiny gains and losses before turning solidly higher toward the final hour of trading.

The S&P 500 added 30.99 points, or 0.7%, to finish at 4546.54. Its three-day percentage gain now sits at 5.1%, its largest since November 2020.

The Dow Jones Industrial Average advanced 273.38 points, or 0.8%, to end at 35405.24. The technology-heavy Nasdaq Composite gained 106.12 points, or 0.7%, to close at 14346.00. Both indexes also finished with their largest three-day percentage gains since November 2020.

The U.S. stock market’s recent winning streak comes after a turbulent start to the year. On Monday, the S&P 500 closed out January with a 5.3% loss, its largest since March 2020. The Nasdaq fell even further, losing 9%.

Driving the January selloff was growing anxiety among investors over how the U.S. stock market will hold up as monetary policy tightens. The Federal Reserve last week signaled that it would begin raising rates in mid-March, prompting traders to shuffle their portfolios. Many dumped shares of highflying growth companies and shifted to stocks and funds that felt safer, such as dividend stocks.

The start of a new month, though, has brought fresh earnings reports and economic data for investors to parse. Some investors say they are hopeful that last month’s volatility is—at least temporarily—behind them. Many still expect 2022 to be a choppy year of trading, as investors continually re-evaluate their portfolios to account for higher interest rates ahead.

“We have relatively good economic conditions, in terms of much-higher-than-normal GDP growth, a strong labor market and consumers and companies with strong balance sheets,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “But you have those big headwinds of the Federal Reserve raising rates and reducing [its] balance sheet. I think investors are trying to decide what’s a good level … for buying some dips but also making sure they are prepared for potential volatility down the road.”

Mr. Zaccarelli said he currently prefers to reposition into higher-quality companies with good profitability. He said he has found opportunities in sectors including financials and energy.

Money managers say they are looking closely at earnings for clues about how companies are navigating issues surrounding inflation and the supply chain. This week, some earnings reports have showcased strong results. Exxon Mobil gained $4.87, or 6.4%, to finish at $80.83 after it reported $23 billion in profit for 2021, its highest total since 2014.

Shares of United Parcel Service rose by $28.48, or 14%, to finish at $230.69—a record—after it reported a rise in quarterly profit. U.S.-listed shares of Switzerland’s UBS Group rose by $1.73, or 9.3%, to close at $20.40 after the bank lifted its financial targets and said it has the firepower to buy back up to $5 billion in shares this year.

“One of the themes of this year was that earnings would be a main driver of the market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. Some 77% of S&P 500 companies that reported results before Tuesday’s close beat earnings-per-share expectations, according to FactSet data.

The stock market entered correction territory as investors re-evaluate the market’s value after the Federal Reserve signaled plans to raise interest rates. WSJ’s Dion Rabouin explains. Illustration: David Fang

Data released Tuesday showed U.S. manufacturing activity slowed last month. The Institute for Supply Management’s Manufacturing Report on Business PMI decreased to 57.6—a reading above 50 generally signals expansion—in January from 58.8 in December. The report showed that the Covid-19 Omicron variant and supply-chain impediments were among the issues that weighed on activity.

A separate report from the Labor Department said hiring and the number of worker resignations slowed in December from the month before.

Of the S&P 500’s 11 sectors, energy stocks posted the largest gain Tuesday. The industrials, financials and materials groups also were among those that recorded strong performances.

Megacap tech stocks, in contrast, traded mixed. Microsoft lost $2.22, or 0.7%, to finish at $308.76. Netflix jumped by $29.99, or 7%, finishing at $457.13. Tech firms suffered during January’s selloff as rising interest rates threatened to weigh on their pricey valuations, which rely on expectations for growth far in the future.

“Tech came into the year very, very expensive, making it all the more vulnerable to an increase in rates,” said Seema Shah, chief strategist at Principal Global Investors. “It makes sense that it has had that selloff, but for tech you have to be a long-term investor and think about the trends going forward.”

In the bond market, the yield on the benchmark 10-year Treasury note rose to 1.799% from 1.780% on Monday. Bond yields and prices move in opposite directions.

The Fearless Girl statue in front of the New York Stock Exchange.

Photo: Spencer Platt/Getty Images

Overseas, the pan-continental Stoxx Europe 600 rose 1.3%. In Asia, Chinese markets were closed. Japan’s Nikkei 225 gained 0.3%.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Will Horner at william.horner@wsj.com

Corrections & Amplifications
U.S. manufacturing activity slowed last month to the lowest level since November 2020, according to the Institute for Supply Management’s Manufacturing Report on Business PMI. An earlier version of this article incorrectly said it was the lowest level since September 2020. (Corrected on Feb 1.)