Stocks end up on Wall Street, still down for the week

Wall Street capped a week of losses with a broad rally for stocks today as investors hailed strong corporate earnings and an encouraging report on consumer sentiment and inflation expectations.

A survey conducted in July by the University of Michigan showed that inflation expectations remained stable or improved, as did general consumer sentiment. The report was welcomed following several government reports this week that showed consumer prices remained extremely hot in June, as well as wholesale prices for businesses.

The report also bodes well for investors looking for signs that the Federal Reserve may eventually ease its aggressive inflation-fighting policy.

The S&P 500 rose 1.9%, ending a five-day losing streak. Still, the gains weren’t enough to pull the benchmark out of red for the week.

The Dow Jones Industrial Average rose 2.1% and the Nasdaq 1.8%. Small company stocks outperformed the broader market, pushing the Russell 2000 Index up 2.2%. However, these indices also posted losses for the week.

“Investors are saying, listen, ‘we’ve seen this before, where the market smartly goes up one day, only to come back the next,'” said Sam Stovall, chief investment strategist at CFRA.

Tech stocks, banks and healthcare companies made some of the biggest gains. PayPal climbed 6.3%. UnitedHealth Group rose 5.4% after raising its profit forecast for the year following a strong earnings report. Citigroup jumped 13.2% for the biggest gain in the S&P 500 after reporting encouraging financial results.

Bond yields have mostly fallen. The 10-year Treasury yield slipped to 2.92% from 2.96% Thursday night. The two-year Treasury yield rose to 3.14% from 3.13% Thursday night.

Inflation and its impact on businesses and consumers remains a key target for Wall Street. The Federal Reserve raised interest rates in an effort to dampen economic growth and curb rising inflation. The Fed has already raised rates three times this year.

Wall Street fears the Fed is going too far in raising rates and triggering a recession. Investors have been watching economic reports closely for clues on how the central bank might react and the latest upbeat report on consumer sentiment raises the possibility that the Fed will ease its current policy.

Traders eased their bets that the Fed will make a monstrous 1% rate hike at its next policy meeting in two weeks. They now see a 30.9% chance of that happening, according to CME Group. This is a significant drop from Thursday. They now see a 69.1% chance of a three-quarters percentage point rate hike.

Economic data also shows that retail sales remain strong. A government report showed retail sales rose 1% in June from May, beating economists’ expectations, while prices for everything from food to clothing rose.

In total, the S&P 500 rose 72.78 points to 3,863.16. The index resisted the decline below 3,800, Stovall noted.

“Any time we go down to around 3,800 and bounce back, it’s a confirmation that there are a lot of buyers at that level,” he said. “And we saw that yesterday as the market retested that level to be pushed higher, and then today with encouraging fundamentals to go with it.”

The Dow rose 658.09 points to 31,288.26 and the Nasdaq rose 201.24 points to 11,452.42. The Russell 2000 gained 36.87 points at 1,744.37.

Overseas, stocks in Hong Kong and Shanghai fell following a report that showed China’s economy shrank 2.6% from an already weak 1.4% quarter-on-quarter for the January-March period. China locked down major cities earlier this year in an attempt to contain COVID-19 cases and other outbreaks this week in China and elsewhere in Asia have raised fears that COVID-19 controls may be reinstated, in addition existing precautions.

Investors looked at the latest batch of corporate earnings to get a clearer picture of inflation’s impact on businesses. Banks kicked things off with mixed results this week. Several major companies are on deck for next week, including Johnson & Johnson, Netflix, United Airlines and Twitter.

Garland K. Long