Wall Street Braces for Earnings Amid Inflation and Rate Cut Bets
As earnings reports from major banks loom, investors keep an eye on inflation data and speculate about future interest rate cuts.
Published July 13, 2024 - 00:07am
Futures tied to the S&P 500 and Nasdaq 100 indexes paused near record levels on Friday ahead of quarterly earnings results from major banks including JPMorgan, Citigroup, and Wells Fargo. Analysts expect large lenders to allocate more funds to cover deteriorating loans.
JPMorgan Chase, the largest U.S. lender, is anticipated to report a decline in quarterly profit. Shares of JPMorgan and Citigroup were marginally down ahead of the results. Investors are also looking beyond heavyweight tech names for strong profit growth to sustain the U.S. stock rally.
On Wall Street, the S&P 500 and Dow Jones Industrial Average hit intraday record highs amid bets that the U.S. Federal Reserve will cut interest rates in September. These expectations were buoyed by a 2% drop in the Nasdaq following a surprise decrease in U.S. consumer prices, which bolstered hopes for a rate cut. Traders now see an 86% chance of a rate cut in September, up from 72% a week ago.
However, not all market reactions were positive. Despite JPMorgan Chase's second-quarter profit being lifted by rising investment banking fees, its shares dipped by 1.2%. Wells Fargo tumbled 6% after missing estimates for quarterly interest income, while Citigroup fell 1.8% despite reporting a surge in investment banking revenue. The S&P 500 banks index lost 1.5% amid these mixed results.
Investors are shifting focus from giant tech firms like Nvidia, seeking strong profit growth from companies beyond the heavily weighted tech sector. This shift led to a near 2% dip in the tech-laden Nasdaq, as expectations for a broader market rally grow. Analysts expect second-quarter earnings for S&P 500 firms to jump 9.6%, with significant growth from technology companies but declining earnings in real estate, industrials, and materials.
This cautious optimism is further influenced by data indicating a slight increase in producer prices in June, supporting the downtrend in inflation. The Producer Price Index (PPI) rose 2.3% annually, compared to a 2.2% rise in May, with the core figure also advancing. Market participants are closely watching the University of Michigan's consumer survey for additional insights on inflation trends.
In early trading on Friday, the Dow Jones Industrial Average edged up by 0.04%, S&P 500 e-minis by 0.03%, while Nasdaq 100 e-minis declined slightly by 0.06%. Tesla's shares fell by 1.4% after UBS downgraded the electric vehicle maker to 'sell', adding to the mixed market sentiment.
The broader economic context is dominated by expectations for an interest rate cut in September, a sentiment strengthened by falling consumer prices and mixed earnings from major banks. Market dynamics are being significantly influenced by these factors, as investors navigate through heightened financial uncertainty.