Stocks look to build on Friday’s rally as weakness in the U.S. dollar boosts stock markets around the globe.
Markets End a 5-Session Slide—Will Financials Sustain Friday’s Gains?
Slightly Better News on Retail Sales, Consumer Sentiment Was Enough to Cool Friday’s Fed Fears
What the CPI and $5,000 Manhattan Apartments Have In Common
Shawn Cruz, Head Trading Strategist, TD Ameritrade
Japan’s Nikkei, Hong Kong’s Hang Seng, and the Shanghai Composite respectively closed 0.54%, 2.7%, and 1.55% higher. The Stoxx Europe 600 was 1.41% higher before the U.S. markets opened, reflecting rallies in London’s FTSE 100 (1.23%), Germany’s DAX (1.43%), and France’s CAC 40 (1.49%).
The positivity appears to be contagious as the Dow, S&P 500, and Nasdaq futures were up 0.84%, 0.78%, and 0.96% in premarket trading.
The global markets were getting some help from a two-day slide in the U.S. dollar. The U.S. Dollar Index ($DXY) was down 0.55% before the market open.
However, it may not be a “risk on” day just yet. The Cboe Market Volatility Index (VIX) was trading a bit higher, climbing more than 3% to 25. Additionally, the 10-year Treasury yield (TNX) was six basis points higher to 2.99% early Monday.
Earnings from the financial sector continue to be mixed as Bank of America (BAC) missed on revenue and earnings estimates, but Goldman Sachs (GS) blew their top- and bottom-line numbers out of the water. BAC was down 0.68% in premarket trading due to that miss prompted in part by its weak capital markets business. The bank didn’t provide future guidance with the report but will likely offer some during its conference call.
Meanwhile, Goldman rallied 3.77% in premarket action after reporting earnings of $7.73 per share, exceeding the FactSet analysts’ estimate of $6.56. While earnings were still down 47% from the previous quarter and the company’s capital markets business also struggled, GS saw revenue increases in its consumer and wealth management businesses grow 25% while compensation costs fell 30%.
Investors holding Alphabet (GOOGL) will want to remember that today is the day it starts trading at its new split price. The 20-for-1 stock split could be a bit of a scare if it were to sneak up on an investor.
WTI crude oil futures were trading 2.2% higher before the opening bell. President Biden was in in Saudi Arabia encouraging the government to increase oil output to help reduce prices at the pump. However, Saudi Arabia failed to offer any concrete commitment for increased production.
Today marks the start of the Fed’s blackout period where Federal Reserve members will stay out of the media’s eye. Looking at the calendar, there also don’t appear to be any major economic reports scheduled for this period. That’s a contrast to June when the worse-than-expected Consumer Price Index (CPI) and the Michigan Consumer Sentiment report numbers were released during the blackout and the Fed couldn’t respond.
Last week’s CPI and Producer Price Index (PPI) came in much hotter-than-expected causing the market to discount a 100-basis point hike by the Fed later this month. However, investor sentiment seemed to change after Friday’s better-than-expected retail sales report and more subdued consumer inflation expectations from the Michigan Consumer Sentiment report.
The CME FedWatch Tool is now reflecting a 75-basis-point hike.
Stocks ended a five-session losing streak on Friday with financial stocks leading a sector turnaround as well as the market.
Big earnings misses Thursday by JPMorgan Chase (JPM) and Morgan Stanley (MS) seemed all but forgotten by week’s end, because the PHLX KBW Bank Index (BKX) finished up 5.67% and the Financials Select Sector Index posted a 3.40% gain after losses the previous day. Behind financials, health care and communications services rounded out the top three sectors of the day.
Among the major indexes, the Dow Jones Industrials ($DJI) gained 658.09, or 2.15%, on the day, the S&P 500® index (SPX) advanced 1.92% to finish at 3,863.15, and the Nasdaq ($COMP) gained 1.79%, or 201.24, to finish the week. The Russell 2000 finished up 2.16% to close at 1,744.37.
By Friday’s close, the Cboe Market Volatility Index (VIX) settled slightly above 24.
As to how the kickoff of Q2 earnings season has gone so far for the few companies in the S&P 500 index (SPX) that have reported, FactSet said Friday that the 7% of the reporting companies offered “weaker-than-normal” results, adding that the number and magnitude of positive earnings and revenue surprises were “smaller than average.” Among these early reports, the research firm said 60% had reported actual earnings per share (EPS) above estimates but still below the five-year average of 77%. Overall, FactSet said companies are reporting earnings that are 2.0% above estimates, below the five-year average of 8.8%.
After a volatile week in which Federal Reserve watchers raised expectations for a 100-basis-point hike at the central bank’s next meeting, two high-profile reports seemed to calm the waters.
Before the trading day, U.S. retail sales for June rose 1% on a monthly basis and ahead of estimates, indicating consumers are still opening their wallets despite 40-year-high inflation. After the open, the University of Michigan reported that preliminary July data for its consumer sentiment index edged up to 51.1 from 50.0 in June.
That slight upward bump—combined with better retail sales numbers—sent several major retailers higher. By Friday’s close, Home Depot (HD) finished up 1.01%, Target (TGT) gained 0.27%, Walmart (WMT) advanced 0.99%, and Amazon (AMZN) added 2.64%.
As mentioned, banks seemed to recover their footing on Friday. After reporting second-quarter earnings results early Friday, Citigroup (C) advanced 13.23% and Wells Fargo (WFC) finished up 6.25% by the close. Even JPMorgan Chase (JPM) and Morgan Stanley (MS), which kicked off the bad Q2 earnings news for the banks on Thursday, finished up 4.58% and 4.50% respectively by the closing bell.
Among other financials sector leaders reporting earnings on Friday:
Bank of America (BAC) rose 7.04%, and Goldman Sachs (GS) gained 4.36% Friday ahead of their earnings announcements today.
The 10-year Treasury finished at a yield of 2.93%, flat for the session, while WTI crude oil gained 1.89% to finish at $97.60 per barrel.
CHART OF THE DAY: SO, HOW’S MORALE? As the Federal Reserve goes day-to-day in its search for signs that inflation could be slowing, consumer expectations about future inflation have been a key barometer in recent rate decisions. On Friday, there was a bit of good news about that. On top of better U.S. retail sales numbers, the University of Michigan’s preliminary consumer sentiment numbers for July showed that inflation expectations have “held steady or improved” based on numbers so far. (This graph doesn’t include today’s data.) FRED® is a registered trademark of the Federal Reserve Bank of St. Louis. The Federal Reserve Bank of St. Louis does not sponsor or endorse and is not affiliated with TD Ameritrade. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
BIT BY BIT: Friday’s data indicates that the Fed is making progress in its efforts to cool red-hot inflation, but are things cooling down with consumers? Not likely. Though the early July numbers for University of Michigan consumer sentiment stayed “relatively unchanged,” researchers indicated that “current assessments of personal finances continued to deteriorate,” reaching their lowest point since 2011.
And though inflation expectations are steady for the moment, the report said the share of consumers “blaming inflation for eroding their living standards continued its rise to 49%,” matching the all-time high reached during the Great Recession. The university added that these views continued despite the most recent national gas price drop to $4.58 per gallon, according to AAA.
TOO (BLANK) HIGH: The New York rental market is the nation’s largest, and in case you missed it, one of the priciest. According to a report last week from real estate companies Miller Samuel and Douglas Elliman, the average monthly Manhattan apartment rent in June was $5,058. The firms said average rental prices were up 29% over last year, while median rent was $4,050 per month, up 25% year-to- year (YOY).
For those of you tempted to say, “Oh, that’s just New York,” the latest Consumer Price Index (CPI) numbers showed that the nation’s residential rents were up 0.8% month-to-month and 5.8% YOY.
SCHOOL DAYS: Back-to-school shopping used to be about pens, pencils and a few new outfits bought close to the first day of school. Today, it’s starting earlier than ever and now stands as the second-most important retail selling season after the December holidays. As inflation mounts and education trends evolve, this year’s back-to-school selling season may be one investors want to watch.
Deloitte reports that back-to-school market size is expected to be $34.4 billion in 2022, up 5.8% YOY. And even though parents report they’re struggling financially, they will spend an inflation-driven $661 per child in the coming weeks versus $612 in 2021. However, Deloitte found that 8% of parents are currently homeschooling their kids (versus 4% in 2021), and homeschoolers are likely to spend 15% less than the average back-to-school shopper.
For college kids, parents are spending $1,600 per child, up 10% YOY, with digital technology becoming an even bigger driver of market growth as students increasingly attend class from anywhere.
July 19: Building permits, Housing starts, and earnings from Johnson & Johnson (JNJ), Lockheed Martin (LMT), Netflix (NFLX), Haliburton (HAL), JB Hunt (JBHT), and Hasbro (HAS)
July 20: Existing home sales and earnings from Tesla (TSLA), Abbott Labs (ABT), Kinder Morgan (KMI), Biogen (BIIB), and Baker Hughes (BKR)
July 21: Philadelphia Fed Manufacturing Index and earnings from AT&T (T), Philip Morris (PM), Union Pacific (UNP), Intuitive Surgical (ISRG), and Freeport-McMoRan (FCX)
July 22: Earnings from Verizon (VZ), American Express (AXP), Schlumberger (SLB), and Twitter (TWTR)
July 25: Earnings from Alphabet (GOOGL), NXP Semiconductors (NXPI), and Whirlpool (WHR)
Helpful Educational Content and Programming
Check out our upcoming Webcasts or watch any of our hundreds of archived videos, covering everything from market commentary to portfolio planning basics to trading strategies for active investors. You can also deepen your investing know-how with our free online immersive courses. No matter your experience level, there’s something for everybody.
Looking to stay on top of the markets? Check out the TD Ameritrade Network, live programming which brings you market news and helps you hone your trading knowledge. And for the day’s hottest happenings, delivered right to your inbox, you can now subscribe to the daily Market Minute newsletter here.
TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc., are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Holding Corporation is a wholly owned subsidiary of The Charles Schwab Corporation. TD Ameritrade Media Productions Company is not a financial advisor, registered investment advisor, broker-dealer, or futures commission merchant.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2022 Charles Schwab & Co. Inc. All rights reserved.