U.S stocks got off to a great start on Monday as the market received another set of positive earning results from several companies and prepared for a week of eagerly awaited central bank meetings.
The S&P 500 was up almost 1% by afternoon trading, resuming last week’s slow recovery. By the end of the previous week, the index had managed to break a five-day losing streak and close higher. The Nasdaq Composite Index rose 1.3%, while the blue-chip Dow Jones Industrial Average posted a 0.5% uptick or approximately 150 points.
As earnings reports from big financial firms started streaming in, Goldman Sachs (NYSE:GS) was up 3% after reporting better-than-expected earnings. Bank of America (NYSE:BAC) reported that second-quarter profits declined 32%, causing shares to gain less than 1%.
On the other hand, Synchrony Financial (NYSE:SYF) was up 2.7% despite year-over-year earnings per share declining since they were still better than analysts’ expectations. Charles Schwab (NYSE:SCHW) also beat analysts’ expectations after second-quarter profits surged 42%, sending shares up by 1.5%. A cursory look at the KBW Nasdaq Bank Index shows it gained 1.2% reflecting continued investor optimism in the sector.
According to the chief executive of Harrison Wallace Financial Group, Faron Daugs, there have been a couple of pleasant surprises in earnings from financial companies. This is what he believes has been driving the current surge in markets.
Should the stream of positive earnings reports from big tech companies continue through the week, this short-term rally is likely to continue, according to Mr. Daugs. There is a strong likelihood that more people would want to add fundamental names to their portfolios.
Uncertain economic outlook vs. investor expectation
For now, most investors are finding themselves in a precarious position as they try to reconcile the uncertain economic outlook with company earnings projections that remain relatively positive. Inflation has been increasing at an alarming rate, nearing a 40-year high last week, while the overall economic growth has been slowing down. At the same time, central banks have been raising interest rates much faster than anticipated, adding to the economic uncertainty going forward, while most corporate earnings have been lackluster.
“It feels like something is wrong: Either the economic story is wrong or analysts are being too optimistic on earnings, and it feels like the latter,” said Altaf Kassam, head of investment strategy for Europe, the Middle East, and Africa at State Street Global Advisors. “If you scrape the text of company earnings announcements, many are complaining.”
IBM (NYSE:IBM) is scheduled to report earnings later today, while other companies expected to report this week include Johnson & Johnson (NYSE:JNJ) on Tuesday, Tesla (NASDAQ:TSLA) on Wednesday and Twitter (NYSE:TWTR) on Friday.
The confidence index among U.S home builders shed 12 points to 55 according to new data from the National Association of Home Builders, and economists polled by the Wall Street Journal revealed they expect it to continue with the seventh consecutive monthly decline.
For the first time in more than a decade, the European Central Bank is expected to hike interest rates during Thursday’s meeting. Furthermore, the EU has been worst hit by the effects of the Ukraine war, which has the potential to fuel an energy crisis in the region. Among the major global central banks, however, it is only the Bank of Japan that seems set to keep interest rates unchanged during its meeting on Thursday. The Federal Reserve already indicated that it would be hiking interest rates by at least 75 basis points this month for the second consecutive time.
Commodities have been on recovery after a long stretch of depressed prices. For instance, Brent crude was up 4% to $101.53 per barrel, similar to the S&P 500’s energy segment’s 3.3% gain. Gold and copper prices in London rose 0.6% and 2.6% to $7,362 per metric ton.
Looking at the bond markets, the yield on the 10-year Treasury note was up to about 3% from 2.93% on Friday.
Global overseas markets were higher, with Europe’s pan-continental Stoxx Europe 600 rising 1.1%. Oil and gas, and mining stocks were responsible for most of the gains thanks to rising commodity prices. Miner Glencore (OTC:GLNCY) and Oil major Shell (NYSE:SHEL) were up 2.5% and 2.6%, respectively, while Germany’s Deutsche Bank and Commerzbank both rose 4%.
Featured Image: Megapixl @Wutzko
