S&P 500, Dow, Nasdaq end day up on data and earnings, but gains don't erase weekly losses

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Bear market hits Wall Street as stocks dive

Wall Street entered a bear market Monday as the S&P 500 sank 3.9%, bringing it more than 20% below the record high it set in January. (June 13)

AP

Stocks closed higher Wall Street Friday following some encouraging economic data on consumer sentiment and inflation expectations. The gains weren’t enough to pull major indexes out of the red for the week, however, following worrisome reports on high prices facing consumers and businesses.

The S&P 500 rose 1.9%, the Dow Jones Industrial Average rose 2.1% and the Nasdaq rose 1.8%. Bond yields mostly fell.

A July survey from the University of Michigan showed that consumers’ inflation expectations have held steady or improved.

Meanwhile, corporate earnings lent support. UnitedHealth Group rose after raising its profit forecast for the year. Citigroup jumped following an encouraging earnings report.

Less glum

The University of Michigan sentiment July survey showed that inflation expectations have held steady or improved, along with general consumer sentiment. It was a welcome update following several government reports this week that showed consumer prices remained extremely hot in June, along with wholesale prices for businesses.

The report also bodes well for investors looking for signs that the Federal Reserve might eventually ease off its aggressive policy to fight inflation.

Inflation and the Fed are still in focus, though

Inflation and its impact on businesses and consumers remain a key focus for Wall Street. A government report showed that retail sales rose 1% in June from May, topping economists’ expectations even as prices for everything from food to clothing rose.

The upbeat retail sales report, though, by some economists noting that retail sales were actually down once adjusted for inflation. Reports earlier this week showed that inflation remains extremely hot. Investors are closely watching how the Federal Reserve fights rising inflation.

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The central bank has been raising interest rates in an effort to hit the brakes on economic growth, and curtail rising inflation. A strong retail sales report could mean that it will remain aggressive with its rate hikes. The Fed has already raised rates three times this year and traders expect another big increase at its meeting in two weeks.

Wall Street is worried that the Fed could go too far in raising rates and actually bring on a recession. While upbeat economic data is encouraging, weaker reports could give the Fed more reason to ease up on rate hikes, potentially reducing the risk of pushing the economy into a recession.

Traders have eased off of their bets that the Fed will issue a monster rate hike of 1% at its next policy meeting in two weeks. They now see a 30.9% chance of that happening, according to CME Group. That’s down significantly from Thursday. They now see a 69.1% chance of a three-quarters of a percentage point rate hike.

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Corporate results

Technology stocks, banks and healthcare companies made some of the biggest gains. PayPal climbed 5.5%. UnitedHealth Group rose 5% after raising its profit forecast for the year following a strong earnings report. Citigroup jumped 14% after reporting encouraging financial results.

Smaller company stocks rose more than the broader market. The Russell 2000 was 2% higher.

China slowdown

Overseas, stocks in Hong Kong and Shanghai fell following a report that showed the Chinese economy shrank by 2.6% compared with the January-March period’s already weak quarter-on-quarter rate of 1.4%. China locked down major cities earlier this year to try and contain COVID-19 cases and more outbreaks this week in China and elsewhere in Asia have raised worries that COVID-19 controls might be restored, on top of existing precautions.