US stocks: S&P 500 and Nasdaq end higher on cool inflation data, solid bank earnings

[NEW YORK] The S&P 500 and the Nasdaq advanced on Tuesday (Jul 14) as solid big bank results and a cooler-than-expected inflation report boosted risk appetite amid rising Middle East tensions.

A rebound in chip shares put the Nasdaq out front, while the Dow’s gains were more subdued.

The Labor Department’s Consumer Price Index showed inflation cooled more than analysts expected in June, largely due to abating energy price pressures amid last month’s signs of progress in US-Iran peace negotiations.

US Federal Reserve Chair Kevin Warsh sat for his first congressional testimony since his confirmation, in part to lay out the central bank’s plan to contain upward price pressures.

Warsh’s testimony occurred while the battle for control over the Strait of Hormuz has led to ramped-up airstrikes between the United States and Iran and boosted crude oil prices, reviving fears of upward price pressures.

Still, following the CPI report, financial markets were pricing in an 83.4 per cent likelihood that the Fed will let its key interest rate stand at the conclusion of its July policy meeting, up from 58.3 per cent on Monday.

Markets expect at least one 25-basis-point rate hike before year-end, according to CME’s FedWatch tool.

“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.”

“(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.”

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S&P 500 and Nasdaq open higher as CPI, bank earnings take focus

Earnings season kicks off

Second-quarter earnings season began with five big US banks reporting solid results, buoyed by trading strength and dealmaking.

Goldman Sachs surged 9 per cent after it surpassed second-quarter profit expectations, as dealmaking picked up pace and geopolitical uncertainties boosted its trading business.

JPMorgan Chase and Bank of America advanced 2.5 per cent and 1.9 per cent, respectively, after delivering consensus-beating profits. Citigroup slid 5.3 per cent as worries over expenses overshadowed its profit beat, while Wells Fargo dropped 2.7 per cent.

“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.”

IBM shares tumbled 25.2 per cent after the company warned second-quarter revenue would fall below estimates.

The Dow Jones Industrial Average rose 10.02 points, or 0.02 per cent, to 52,508.66, the S&P 500 gained 28.55 points, or 0.38 per cent, to 7,543.89 and the Nasdaq Composite gained 233.83 points, or 0.90 per cent, to 26,107.01.

Among the 11 major sectors of the S&P 500, tech shares registered the biggest percentage gain, while healthcare stocks were the biggest laggards.

Advancing issues outnumbered decliners by a 1.78-to-1 ratio on the NYSE. There were 205 new highs and 108 new lows on the NYSE.

On the Nasdaq, 2,651 stocks rose and 2,103 fell as advancing issues outnumbered decliners by a 1.26-to-1 ratio.

Volume on US exchanges was 16.38 billion shares, compared with the 21.66 billion average for the full session over the last 20 trading days. REUTERS