Wall Street ended mostly higher on Tuesday as investors welcomed cooler than expected US inflation data and a strong start to the second quarter earnings season, helping offset concerns over escalating tensions in the Middle East.
The Nasdaq Composite led the gains after a rebound in semiconductor stocks, climbing 233.83 points or 0.90% to finish at 26,107.01. The S&P 500 added 28.55 points or 0.38% to 7,543.89, while the Dow Jones Industrial Average edged up 10.02 points or 0.02% to close at 52,508.66.
The upbeat mood followed June’s Consumer Price Index report, which showed inflation slowed more than economists had expected. Lower energy prices, helped by signs of progress in US-Iran peace negotiations last month, were among the key contributors to the softer reading.
The inflation figures also eased concerns that the US Federal Reserve would need to tighten monetary policy further. Following the data, financial markets priced an 83.4% probability that the central bank would keep interest rates unchanged at its July meeting, up sharply from 58.3% a day earlier. Traders, however, continue to expect at least one 25 basis point rate increase before the end of the year.
“The inflation report seems to have weakened the argument that the Fed is going to raise rates,” said Chuck Carlson, chief executive at Horizon Investment Services in Hammond, Indiana.
“It gives the Fed cover, for now.”
Carlson also pointed to testimony from Federal Reserve Chair Kevin Warsh before Congress, saying the central bank’s message remained focused on bringing inflation under control.
“(Warsh) is saying we can bring down inflation, and that’s what the people he was speaking to want to hear,” Carlson added. “And maybe inflation is going to come down without having to raise rates.”
Investors also digested the first wave of earnings from major US banks, with results broadly exceeding expectations thanks to resilient trading activity and stronger dealmaking.
Goldman Sachs surged 9% after posting better than expected quarterly profit, while JPMorgan Chase rose 2.5% and Bank of America gained 1.9% after both lenders also delivered earnings ahead of forecasts.
Citigroup moved in the opposite direction, falling 5.3% as investors focused on higher expenses despite stronger profit, while Wells Fargo slipped 2.7%.
“It’s a big earnings week, so we finally get to hear from corporate America,” said Tom Hainlin, national investment strategist at US Bank Asset Management in Minneapolis.
“What we continue to look for from the banks is what are they seeing in terms of consumer health? So far, good news on that front.”
Technology was the strongest performing sector in the S&P 500, although IBM tumbled 25.2% after warning that its second quarter revenue would miss analysts’ estimates.
Market breadth remained positive, with advancing stocks comfortably outnumbering decliners on both the New York Stock Exchange and the Nasdaq. Trading volume reached 16.38 billion shares, below the 20-session average of 21.66 billion shares.
Despite the encouraging inflation data, investors continued to monitor developments in the Middle East after renewed fighting involving the US and Iran around the Strait of Hormuz pushed oil prices higher and kept concerns over future inflationary pressures alive.
Reuters
