Closing Stock Market Summary: Buyer conviction picks up ahead of weekendBuying interest picked up today to build on yesterday's rally. The major indices closed decidedly higher with the Dow Jones Industrial Average leading, up 2.2%. Despite the strong finish, the DJIA still lost 0.2% for the week while the S&P 500 fell 0.9%.
The buyer conviction was fueled by the better-than-expected Retail Sales data, which showed a 1.0% increase on both the headline level and when excluding auto sales. Retail sales are not adjusted for inflation, so the increase in sales was largely a reflection of consumers tolerating higher prices. Recall that CPI increased 1.3% month-over-month in June.
The July University of Michigan Consumer Sentiment preliminary reading was 51.1 (Briefing.com consensus 49.4), compounding the positive bias. The reaction to this may be outsized since the final reading for June was the lowest reading ever on records dating back to 1978. In addition, the slight uptick in consumer sentiment was due to falling oil prices. Crude oil, which fell past its 200-day moving average yesterday (93.58) to a level not seen since late February, settled up more than $2.00 today, and up $7.36 or 8.1% off yesterday's low.
Despite the factors fueling buying interest, the Atlanta Fed GDPNow estimate was downwardly revised today and shows an expected contraction of 1.5% from 1.2% in the prior forecast.
To be fair, the positive bias today was also aided by favorable earnings and/or guidance from several large stocks. Citigroup (C 49.98, +5.84, +13.2%), Wells Fargo (WFC 41.13, +2.39, +6.2%), and UnitedHealth (UNH 529.75, +27.32, +5.4%) all showed big gains today. Citigroup had the best Q2 results of any big bank thus far while Wells Fargo missed estimates but noted that net interest income is expected to be 20% higher than 2021. UnitedHealth beat earnings estimates and issued above-consensus guidance.
These names also gave a nice boost to their respective S&P 500 sectors, financials (+3.5%) and health care (+2.5%), which closed at the top of the leaderboard. All 11 sectors closed in the green with countercyclical sectors, utilities (+0.2%) and consumer staples (+0.4%), rounding out the bottom of the pack. Even with today's underperformance, these two sectors finished the week ahead of the remaining nine sectors.
The 2s10s spread became more inverted this week with the 2-yr note yield up one basis point on the day and week-to-date to 3.13%. The 10-yr note yield dropped notably this week, settling down three basis points on the day and 17 basis points week-to-date to 2.93%.
Before Monday's open, a few more financials are set to report earnings, including Bank of America (BAC 32.25, +2.1%, +7.0%), Charles Schwab (SCHW 62.18, +1.61, +2.7%), and Goldman Sachs (GS 293.87, +12.28, +4.4%).
Economic data on Monday will be limited to the July NAHB Housing Market Index (Briefing.com consensus 66; prior 67) at 10:00 a.m. ET and May Net Long-Term TIC Flows (prior $87.7 billion) at 4:00 p.m. ET.
Today's notable economic data includes:
- Total retail sales increased 1.0% month-over-month (consensus 0.8%) following an upwardly revised 0.1% decrease (from -0.3%) in May. Excluding autos, retail sales increased 1.0% ( consensus 0.6%) following an upwardly revised 0.6% increase (from 0.5%) in May.
- The key takeaway from the report is that it was strong enough to keep concerns about weakening consumer spending at bay for the time being. At the same time, it needs to be acknowledged that these figures are not adjusted for inflation, so they should not be viewed as an exact reflection of consumer strength.
- Total industrial production decreased 0.2% month-over-month in June (consensus 0.2%) following a downwardly revised flat reading in May (from 0.2%). The capacity utilization rate decreased to 80.0% ( consensus 80.0%) from an upwardly revised 80.3% (from 79.0%) in May.
- The key takeaway from the report is that total production was weighed down by the second consecutive month of falling manufacturing output. A continuation of this dynamic would be viewed as a negative signal about the strength of the manufacturing sector.
- The preliminary reading of the University of Michigan Index of Consumer Sentiment for July rose to 51.1 ( consensus 49.4) from June's final reading of 50.0. One year ago, the July reading was at 81.2.
- The key takeaway from the report is that the slight improvement in sentiment was owed to a dip in inflation expectations after the recent pullback in energy prices. While any improvement is a welcomed sight, this one could be reversed easily if energy prices rebound.
- The Empire State Manufacturing survey rose to 11.1 (consensus -0.9) in July from -1.2 in June.
- Business Inventories increased by 1.4% in May (consensus 1.2%) after increasing a revised 1.3% (from 1.2%) in April.
- Import prices rose 0.2% in June after increasing a revised 0.5% (from 0.6%) in May. Excluding oil, import prices fell 0.5% after decreasing 0.3% in May. Export prices rose 0.7% in June after increasing a revised 2.9% (from 2.8%) in May. Excluding agriculture, export prices rose 0.9% after increasing a revised 3.0% (from 2.9%) in May.
- Dow Jones Industrial Average: -13.9% YTD
- S&P 400: -18.9% YTD
- S&P 500: -19.0% YTD
- Russell 2000: -22.3% YTD
- Nasdaq Composite: -26.8% YTD