[New York Stock Market] Rises on Strong Bank Earnings... Dow Up for 7 Consecutive Trading Days

The three major indices of the U.S. New York stock market all closed higher on the 18th (local time), as investors monitored corporate second-quarter earnings reports and retail sales data. The Dow Jones Industrial Average, composed of blue-chip stocks, extended its rally for the seventh consecutive trading day, buoyed by better-than-expected earnings from major banks.

On the New York Stock Exchange (NYSE) that day, the Dow closed at 34,951.93, up 366.58 points (1.06%) from the previous session. This marked a seven-day winning streak, the longest rally since March 2021. The S&P 500, which focuses on large-cap stocks, rose 32.19 points (0.71%) to 4,554.98, while the tech-heavy Nasdaq gained 108.69 points (0.76%) to close at 14,353.64.

Within the S&P 500, eight of the eleven sectors excluding real estate, utilities, and consumer staples all advanced. Financial stocks rose more than 1%, driven by better-than-expected earnings from major banks. Interest rate-sensitive tech stocks also jumped over 1%. Bank of America (BoA) and Morgan Stanley, which reported earnings before the market opened, rose 4.42% and 6.45%, respectively. New York Mellon, which exceeded expectations, also climbed more than 4%. PNC Financial, which reported mixed results, increased by over 2%.

Microsoft surged nearly 4% following the announcement of AI-related products. On this day, MS stock hit an all-time high since its IPO in March 1986. Chipotle rose over 1% on news of a contract for expansion into the Middle East. Tesla gained more than 1% ahead of its earnings report scheduled for the next day.

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Investors closely watched the second-quarter earnings season, which gained momentum last week with major banks’ reports, along with key indicators such as retail sales. With inflation indicators like the Consumer Price Index (CPI) showing clear easing trends last week, concerns about Federal Reserve (Fed) tightening have receded, shifting investor focus to corporate earnings. The major banks that released earnings before the market opened posted results exceeding expectations. BoA’s net income rose 19% year-over-year to $7.4 billion. Although Morgan Stanley’s net income declined, its earnings per share of $1.24 surpassed the forecast of $1.15.

This week, earnings reports from big tech companies such as Tesla and Netflix, which attract significant investor attention, are scheduled. Despite expectations that the net income of S&P 500-listed companies will decline by more than 7% year-over-year in the second quarter due to cost pressures, the early earnings season sentiment has been positive. According to FactSet, 84% of S&P 500 companies that have reported so far have beaten estimates.

U.S. retail sales released that day showed a third consecutive month of growth but fell short of market expectations. According to the U.S. Department of Commerce, retail sales in June increased by 0.2% month-over-month, marking three consecutive months of growth. However, this was below the expert consensus of +0.5% compiled by The Wall Street Journal (WSJ) and also less than the previous month’s increase. The May retail sales figure was revised upward from 0.3% to 0.5%. Core retail sales, excluding gasoline and automobiles, rose 0.3%, matching Bloomberg’s forecast.

Retail sales are considered a pillar accounting for two-thirds of the U.S. real economy and a comprehensive gauge of economic health. This data was released amid a clear easing trend in inflation indicators such as the CPI, a retreat in Fed tightening concerns, and rising expectations for a so-called ‘soft landing.’

Accordingly, market interpretations are divided between signs of a gradual economic slowdown and analyses that robust consumer spending continues to support the economy. Oren Klatchkin, an economist at Oxford Economics, noted in an investor memo that June retail sales suggest consumers are becoming more cautious in their purchases. Robert Fredrick, a corporate economist at Navy Federal Credit Union, analyzed that while the retail spending data is positive, it was weaker than expected and indicates consumers are exercising more caution in their spending.

On the other hand, considering the cumulative effects of tightening, some assessments still regard U.S. consumer spending as solid. CNN reported that “U.S. consumers are still opening their wallets despite high interest rates, stubborn inflation, and ongoing economic uncertainty,” but added that “whether this momentum will continue after summer remains to be seen.” Earlier, Jamie Dimon, CEO of JPMorgan Chase, assessed the U.S. consumer situation during the earnings report on the 14th, stating that “consumers are in good shape” and “are spending cash in excess.”

On Wall Street, there is speculation that if the Fed’s rate hikes are limited to just one more time this year as investors expect, the New York stock market rally could gain further momentum. Previously, the Fed had indicated two ‘baby steps’ (0.25 percentage point rate hikes) this year, citing inflation that has not fallen as much as expected and an overheated labor market.

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market sees a baby step rate hike in July followed by a likely pause in September. Fed officials have entered a blackout period ahead of the July Federal Open Market Committee (FOMC) meeting scheduled for the 25th-26th, refraining from public comments. Later this week, data on building permits and housing starts are also expected.

In the New York bond market that day, Treasury yields declined. The 10-year U.S. Treasury yield hovered around 3.79%, while the 2-year Treasury yield, sensitive to monetary policy, was around 4.76%. The dollar index, which measures the value of the U.S. dollar against six major currencies, remained steady near 99.95.

International oil prices rose. On the New York Mercantile Exchange, August delivery West Texas Intermediate (WTI) crude oil closed at $75.75 per barrel, up $1.60 (2.16%) from the previous day.