Wall Street races to fresh record highs as weak data dulls chance of US rate increases
The Dow and S&P 500 hit record highs on Friday after weak economic data dulled prospects of more US interest rate hikes this year.
A decline in financial shares limited the day’s gains, even though JPMorgan Chase & Co and other big banks delivered quarterly results that beat Wall Street expectations.
Data showed consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and subdued expectations of strong economic growth in the second quarter.
“The data is pointing to this continuation of fairly accommodative policy, which has obviously served the market well over the last few years. So as far as the market is concerned, it’s sort of more of the same,” said Lee Ferridge, head of macro strategy for North America at State Street Global Markets in Boston.
Chances of a rate hike in December fell to 48 per cent after the release of data, from 55 per cent late Thursday.
Earlier this week, the market rose after Federal Reserve Chair Janet Yellen said future rate hikes could be gradual in the face of persistently low inflation.
The S&P financials, which benefit from a rising rate environment, fell 0.5 per cent, and the group was the only one of the S&P 500 sectors down on the day.
The Dow Jones Industrial Average was up 84.65 points, or 0.39 per cent, to 21,637.74, the S&P 500 gained 11.44 points, or 0.47 per cent, to 2,459.27, and the Nasdaq Composite added 38.03 points, or 0.61 per cent, to 6,312.47.
The CBOE Volatility index closed at its lowest since December 1993.
For the week, the Dow was up 1.1 per cent, the S&P 500 was up 1.4 per cent, and the Nasdaq rose 2.6 per cent. The Nasdaq’s percentage gain for the week was its biggest so far this year.
The small-cap Russell 2000 index, which has underperformed the S&P 500 this year, also ended at a record high.
Four of the largest lenders beat analysts’ quarterly profit expectations by raising loan prices without paying much more for deposits. But analysts said investors had wanted to see even better results and hear a rosier outlook from executives.
JPMorgan Chase was down 0.9 per cent, while shares of Citigroup were down 0.4 per cent and Wells Fargo fell 1.1 per cent.
“In the past few weeks, (financial) stocks have been very strong. There’s been just a little bit of a sell on the news, but afterward, you buy on the idea of a good quarter,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
The financial index was down 0.7 per cent for the week after rising 1.5 per cent the week before.
Bank of America, Goldman Sachs and Morgan Stanley all are due to report results next week. Analysts estimate second-quarter earnings for the S&P 500 companies rose 8.1 per cent from a year earlier. First-quarter earnings posted their best performance since 2011, according to Thomson Reuters.
Earnings will be closely watched to see if high valuations are justified in the face of tepid inflation and a recent patch of mixed economic data.
Amazon.com shares rose 0.1 per cent. The company has raised flags in Washington, with a Democratic lawmaker calling for a hearing on how Amazon’s plans to buy Whole Foods Market will potentially impact consumers. The deal, announced in June, marks the biggest acquisition ever for the world’s largest online retailer.