Stocks Rise as Wall Street Banks Reach Two-Year Highs

The latest market update reveals a positive momentum for stocks as Wall Street banks reported strong earnings, leading to a bullish atmosphere across financial markets.

The S&P 500 Shows Steady Growth

The S&P 500 climbed by 0.6%, marking its fifth consecutive weekly gain, which is the longest winning streak since May of this year. This upward movement has propelled the index above 5,800 points, making it the 45th record achieved in 2024.

Concerns among traders regarding potential declines in bank profits due to anticipated Federal Reserve rate cuts were alleviated. Notably, JPMorgan Chase & Co. surprised analysts with an unexpected increase in net interest income. In contrast, Wells Fargo & Co. reported a decline in net interest income but is optimistic that the drop will be less significant in the upcoming quarter. Both banks experienced at least a 4.4% surge in their stock prices, contributing to a rise in the KBW Bank Index, which reached its highest point since April 2022.

Positive Outlook for Earnings Season

According to Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, the earnings season for banks is expected to be robust. He highlighted that credit card delinquencies remain low and an increase in economic activity should stimulate bank revenues.

In addition to the S&P 500, the Nasdaq 100 increased by 0.1%. The Dow Jones Industrial Average rose by 1%, and the Russell 2000 jumped by 2.1%. However, Tesla Inc. saw a significant decline of 8.8% following the unveiling of its Robotaxi, which lacked detailed specifications. On the other hand, rideshare companies Uber Technologies Inc. and Lyft Inc. saw their stocks rise by over 9.5%.

Treasury Performance and Market Expectations

Treasury bonds displayed only minor fluctuations, with shorter-term bonds performing better. Notably, a Bloomberg index of US bonds has recorded declines for four consecutive weeks. The US dollar remained stable, benefiting from expectations of a more gradual pace in rate cuts. In the commodities market, West Texas Intermediate crude oil settled below $76 a barrel.

Future Earnings Predictions

David Lefkowitz from UBS Global Wealth Management expressed optimism that the beginning of the rate-cutting cycle by the Federal Reserve should boost the economy through lower interest rates on loans and credit card debt. This anticipation suggests that the earnings reports for the third quarter will align with recent positive trends.

Historically, in non-recessionary contexts, the S&P 500 has averaged a 17% increase in the 12 months following the Fed's commencement of rate cuts. Lefkowitz reiterated his price targets for the S&P 500, aiming for 5,900 by December 2024 and 6,200 by June 2025.

Trends in Financial Sectors

Torsten Slok at Apollo pointed out that financial stocks tend to outperform during Federal rate-cutting cycles that conclude with a “soft landing” for the economy. A review of sector performances during past rate-cutting phases from 1995 to 1998 shows strong returns in financials.

Mixed Expectations for Earnings Reports

As the third-quarter earnings season approaches, analysts have noted a notable gap between lowered expectations for S&P 500 companies and management's positive outlook. This discrepancy suggests that many firms could exceed forecasts. Currently, the anticipated net income growth for S&P 500 companies stands at only 4.2% for this quarter, a decrease from over 7% expected in mid-July, largely due to the energy sector. Analysts have also revised their expectations downward for most sectors except communication services, with 37% of S&P 500 companies projected to report lower earnings per share compared to the previous year, a significant increase from the 26.6% seen last quarter.

Stocks, Banks, Earnings