Stocks rebounded from a two-day sell-off as positive earnings reports fueled optimism about the economy. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) both posted strong gains.

Today's stock market

Index Percentage Change Point Change
Dow 0.80% 187.08
S&P 500 0.82% 21.02

Data source: Yahoo! Finance.

Consumer stocks led the market today, with the Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) gaining 1.4%. Technology companies had a big day; the Technology Select Sector SPDR ETF (NYSEMKT:XLK) likewise rose 1.4%.

As retail companies report third-quarter results, their stocks are seeing big swings. Wal-Mart Stores (NYSE:WMT) rose sharply when it beat expectations, and Best Buy (NYSE:BBY) dropped when it fell short.

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Image source: GEtty Images.

Wal-Mart continues its strong run

Wal-Mart reported better-than-expected third-quarter earnings this morning and raised the outlook for the full year, sending shares of the retail giant soaring 10.9% to an all-time high. Revenue rose 4.2% to $123 billion, above the $121 billion analysts were looking for, and adjusted earnings per share came in at $1.00 compared with expectations of $0.97 per share. EPS guidance for the full fiscal year, which ends Jan. 26, was raised 1.6% at the midpoint to a range of $4.38 to $4.46. 

Comparable-store sales in the U.S. were particularly strong, with growth of 2.7% excluding fuel, compared with guidance given three months ago of a range of 1.5% to 2%. Grocery sales were a highlight, up low single digits. But the company showed strength in the top line across the board, growing e-commerce sales 50% and international revenue 2.5%, excluding currency effects.

Profit margins fell as the company priced aggressively to boost traffic and the e-commerce business became a greater proportion of the total. Gross margin fell 29 basis points, and operating income in constant currency fell to 3.8% of revenue from 4.3% last year. 

With investors concerned over competition from and looking for clues about the upcoming holiday season, Wal-Mart's strong results and upbeat guidance for the end of the year were welcome news.

Best Buy disappoints on Q3 sales, Q4 profit outlook

Electronics retail chain Best Buy reported third-quarter results today that slightly missed revenue expectations and met predictions for earnings per share. However, guidance for fourth-quarter profits came in below analysts' consensus estimate, and the market sent shares down 3.6%.

Revenue grew 4.2% to $9.32 billion, below analysts' expectation of $9.36 billion. Non-GAAP EPS was up 30% to $0.78. Comparable-store sales grew 4.5% in the U.S. and 4.4% overall. The company also gave a boost to its guidance for full-year revenue and operating profit. It now forecasts revenue growth of 4% to 4.8%, compared with earlier guidance of 4%. The outlook for non-GAAP operating income was raised to a range of 7.5% to 9.5% from the earlier guidance of 4% to 9%, but the EPS guidance for Q4 of $1.89 to $1.99 fell short of the analyst consensus of $2.03.

Wall Street prognostications aside, CEO Hubert Joly was upbeat about the holiday season. "Looking ahead, we are very excited about our plans for holiday, including a curated assortment of great new technology products, free shipping with no minimums, and a range of new capabilities such as our new in-home advisor program, an updated gift center, and same-day delivery in 40 cities," he said in the press release.

The revenue miss was blamed on the delayed launch of the iPhone X and the impact of hurricanes, decidedly short-term issues. But investors are particularly nervous about retailers these days, and it doesn't take much of a short-term disappointment to trigger some selling.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jim Crumly owns shares of AMZN. The Motley Fool owns shares of and recommends AMZN. The Motley Fool has a disclosure policy.