All three stock indexes ended at their highest levels in 15 months, with gains led by banks and technology stocks, helped by upbeat corporate earnings reports, despite retail sales data showing the U.S. consumer was more cautious in June.
How stocks traded
-
The Dow Jones Industrial Average
DJIA,
+1.06%
ended up 366.58 points, or 1.1% to 34,951.93, in its seventh consecutive day of gains, marking its longest wining streak since March, 2021. The index reached its highest close since April 2022 -
The S&P 500
SPX,
+0.71%
finished up 32.2 points, or 0.7% to 4,554.98, the highest close since April, 2022 -
The Nasdaq Composite
COMP,
+0.76%
advanced 108.7 points, or 0.8% to 14,353.64, the highest close since April, 2022
On Monday, the Dow Jones Industrial Average rose 76 points, or 0.22%, to 34585, the S&P 500 increased 17 points, or 0.39%, to 4523, and the Nasdaq Composite gained 131 points, or 0.93%, to 14245.
What drove markets
Investors are getting another look at the economy from the eyes of corporate America, as the second-quarter earnings season rolls in. And so far, so good.
On Tuesday, more large banks reported results, including Bank of America
BAC,
Morgan Stanley
MS,
and BNY Mellon
BK,
while Interactive Brokers
IBKR,
and Charles Schwab
SCHW,
also presented their numbers. Defense contractor Lockheed Martin
LMT,
also released its results.
See: Bank ETFs bounce, with this fund heading for potentially best month since 2021
“So far, companies are surprising to the upside,” Quincy Krosby, LPL Financial’s chief global strategist said in a phone interview. That’s just one reason for Tuesday’s gains.
There’s a continuing tug of war between the bulls and bears, but for now the bulls are pulling harder, powered by earnings results and a picture of cooling inflation, noted Krosby.
On the other side, there’s a “wall of worry” that keeps getting addressed, Krosby said. Those include now-extinguished concerns about the debt ceiling, and fears that a flood of Treasury bills unleashed by the U.S .debt resolution would drain liquidity in equity markets.
“As it turns out money-market funds were buying the Treasurys and adding more liquidity in the market,” Krosby said. “Right now, price action is winning over that wall of worry,” she said.
Meanwhile, shares of Microsoft Corp. MSFT surged to a record close after the software behemoth set higher-than-expected prices on artificial-intelligence-powered software. The stock’s gain Tuesday added more than 100 points to the Dow.
Investors will be hoping that corporate results and management forecasts justify a market that sits at its best levels since April 2022, with the S&P 500 and Nasdaq Composite indices up 18.6% and 37.1% for the year to date.
It’s going to take a catalyst to prompt a pullback — and one place that could happen is the Federal Reserve’s coming interest rate decision, Krosby said.
The Fed meets next week to discuss a potential interest rate rise. The central bank is widely expected to make a 25-basis point increase in the fed-funds rate, but the big question is what happens after that hike.
The health of U.S. consumers is another ongoing question. June retail sales showed a meager, below-forecast increase as consumers cope with the Fed’s campaign of rate hikes and questions about what’s next for the economy. Retail sales increased 0.2% in June, below the 0.5% expectation. Excluding autos and gas, sales increased 0.3% during the month.
“While positive, the numbers were weaker than expected and show growing consumer caution,” said Robert Frick, corporate economist with Navy Federal Credit Union. “Overall, Americans have the money to spend with more jobs, higher wages and lower inflation. But given slowing spending and higher savings, they’re choosing to be prudent, perhaps because a majority see unemployment rising later this year.”
Other economic updates on Tuesday include June industrial production and capacity. Industrial output was down 0.5% in June, after a revised 0.5% decline the month before. The decline was below expectation of a flat reading. While one economist said the manufacturing sector is in “a sorry state,” business inventories increased 0.2% in May.
However, the home builders sentiment index increased for the seventh straight month. The shortage of existing homes for sale is helping buoy builders’ outlooks. But high mortgage rates, around the 7% mark, and questions about the Fed’s interest rate policy are reasons for caution, according to Robert Dietz, chief economist at the National Association of Home Builders.
Companies in focus
-
Bank of America Corp.’s
BAC,
+4.42%
second-quarter earnings beat Wall Street expectations, sending the megabank’s stock up by 4.6% Tuesday. -
Morgan Stanley
MS,
+6.45%
stock closed up 6.5% Tuesday after the bank’s second-quarter profit and revenue beat analyst expectations. -
Lockheed Martin Corp.
LMT,
-3.04%
posted stronger-than-expected second-quarter earnings on Tuesday and the defense manufacturer raised its full-year guidance. The stock closed off 2.9%. -
Charles Schwab Corp.’s stock
SCHW,
+12.57%
finished up 12.5% Tuesday, after the discount brokerage’s second-quarter earnings fell from a year ago but still topped consensus estimates. -
PNC Financial Services Group Inc.’s
PNC,
+2.51%
stock gained 2.5% Tuesday after the regional bank missed its second-quarter revenue target.
— Jamie Chisholm contributed.
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