Joey Solitro
Markets rebounded sharply Friday from yesterday's selloff after the latest consumer sentiment and inflation data boosted bets that the Federal Reserve would start cutting interest rates in September. Meanwhile, big banks kicked off earnings season with mixed results.
The day kicked off with some mixed economic news that fueled optimism for a more dovish Fed. On the inflation front, the U.S. Bureau of Labor Statistics said the Producer Price Index (PPI), which measures wholesale inflation, rose 0.2% in June, or slightly ahead of economists' forecast for a 0.1% increase.
Core PPI – a relevant metric for the Fed that excludes food, energy and trade costs – remained unchanged month-over-month.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Separately, the University of Michigan Survey of Consumers hit a yearly low, but both short- and long-term inflation expectations ticked lower.
"The stock market is continuing to hit record highs amid expectations for strong earnings, softening inflation, excitement over Fed rate cuts and a belief that the economy was able to withstand these past few years of high interest rates," writes Clark Bellin, president and chief investment officer at Bellwether Wealth.
Although Friday's strong PPI comes after yesterday's weak June CPI report, Bellin notes that the Fed remains data dependent – and has plenty more data ahead to consider. Nevertheless, "even with Friday's strong PPI, we still believe a September rate cut is in play," Bellin adds.
Markets are desperate for the Fed's Federal Open Market Committee (FOMC) to bring rates down from a 23-year high. The FOMC penciled in just one quarter-point cut to the short-term federal funds rate at its June meeting, but markets are increasingly convinced it will have to ease sooner rather than later.
As of July 12, interest rate traders assigned an 88% probability to the FOMC enacting its first quarter-point cut at its September meeting, up from 85% a day ago, or 60% a month ago, according to CME Group's FedWatch Tool.
At the closing bell, the tech-heavy Nasdaq Composite gained 0.6% to 18,398, while the broader S&P 500 added 0.6% to 5,615. The blue-chip Dow Jones Industrial Average rose 0.6% to finish at 40,000.
Mixed bag for big bank earnings
The nation's largest banks by assets unofficially kicked off second-quarter earnings season with widely divergent results.
JP Morgan Chase (JPM, -1.2%) fell Friday despite releasing second-quarter earnings that topped analysts' expectations.
In the quarter ended June 30, JP Morgan’s revenue increased 20.3% year-over-year to $51 billion and its net income jumped 25% year-over-year to $18.1 billion. Excluding certain items, its net income came in at $13.1 billion, or $4.40 per share.
"The Firm performed well in the second quarter, generating net income of $13.1 billion and a ROTCE (return on average tangible common shareholder's equity) of 20% after excluding a net gain on our Visa shares, a contribution to the Firm’s Foundation and discretionary securities losses," JP Morgan CEO Jaime Dimon said in a statement.
Citigroup (C, -1.8%) stock also declined despite beating top- and bottom-line expectations for its second quarter.
In the quarter ended June 30, Citigroup's revenue increased 3.6% year-over-year to $20.1 billion, which it said was driven by growth across all businesses, particularly in Banking, U.S. Personal Banking and Markets. Its earnings per share (EPS) increased 14.3% to $1.52 from the year-ago period.
Citigroup reiterated that it will be increasing its dividend by 6% in the third quarter, which it first announced on June 28 after the Federal Reserve stress test process.
Woe unto WFC
But the biggest loser in the S&P 500 on Friday was Wells Fargo (WFC, -6%).
The banking giant beat analysts’ expectations on the top and bottom lines for its second quarter, but its net interest income, a key metric for banks, failed to meet expectations.
In the quarter ended June 30, Wells Fargo’s revenue increased 0.8% year-over-year to $20.7 billion despite a 9.4% year-over-year decline in net interest income to $11.9 billion. Its earnings per share (EPS) increased 6.4% to $1.33 from the year-ago period.
"Our efforts to transform Wells Fargo were reflected in our second quarter financial performance as diluted earnings per common share grew from both the first quarter and a year ago," Wells Fargo CEO Charlie Scharf said in a press release.
WFC generated a total return (price change plus dividends) of 24% for the year-to-date through July 11, vs 30% for Citigroup and 24% for JPM. Analysts give WFC a consensus recommendation of Buy, but with mixed conviction, according to S&P Global Market Intelligence.
Related content
- All 30 Dow Jones Stocks Ranked: The Pros Weigh In
- Best Dividend Stocks to Buy for Dependable Dividend Growth
- Analysts' Top S&P 500 Stocks to Buy Now
-
I’m burned out at work, but I dread retirement boredom and loneliness. Now what?We asked the experts what to do when you're stuck on the fence.
-
Fewer Agents, Fewer Audits: How IRS Staff Cuts Are Changing EnforcementSignificant reductions in the IRS workforce appear to be increasing the number of 'no change' audit closures. The shift could potentially increase the overall tax gap — the difference between taxes that should have been paid and those that were.
-
Fewer Agents, Fewer Audits: How IRS Staff Cuts Are Changing Enforcement
Significant reductions in the IRS workforce appear to be increasing the number of 'no change' audit closures. The shift could potentially increase the overall tax gap — the difference between taxes that should have been paid and those that were.
-
What if You Could Increase Your Retirement Income by 50% to 75%? Here's HowCombining IRA investments, lifetime income annuities and a HECM into one plan could significantly increase your retirement income and liquid savings compared to traditional planning.
-
Here's Why You Shouldn't Do an Estate Plan Without a Financial PlannerEstate planning isn't just about distributing assets. Working with a financial adviser can ensure you've considered the big picture — and the finer details.
-
Stock Market Today: Rally Pauses for "Real End" to Middle East WarThe future is uncertain by nature, but it's hard to recall a time when views on what's next have been this volatile from day to day.
-
We Are Peter Lynch: How to Invest in What You KnowTake a look around, go to a free stock market data website, and get to work.
-
Trump Tariffs and Taxes: Waiting to See What Happens Is Not a StrategyLike presidents, tariffs come and go. Policy changes also shift about every two years with the election cycle. If you're paralyzed by uncertainty, you could be missing opportunities to benefit your financial future.
-
Is a Family Office Right for You? The Multimillion-Dollar QuestionAs ultra-high-net-worth individuals increase in number, many are turning to family offices to manage their complex finances. Here's how family offices work, courtesy of a finance professional.
-
This Is How a Lot of Law School Students Are CheatingGrowing numbers of students are falsely claiming a learning disability to score more time to take tests. This has real-world consequences in which fellow students, law firms and their clients pay the price.
