(Bloomberg) -- Stocks hit fresh all time highs as the latest economic data showed the economy is still holding up as inflation recedes and the U.S. Federal Reserve nears a start to rate cuts.
Once again, smaller firms rallied, with the Russell 2000 poised for its biggest five-day run since April 2020. Conversely, the megacap space that has powered the bull market came under pressure, with Nvidia Corp. — the artificial-intelligence poster child — driving losses. Traders also waded through financial earnings. Morgan Stanley dropped as results from its key wealth business fell short of estimates. Bank of America Corp. rose after saying net interest income would climb by the end of the year.
The resilience of the equity market has been underpinned by optimism the economy has withstood the worst of Fed tightening. In this regard, Tuesday’s retail sales report was a “healthy” development, according to Bret Kenwell at eToro. It’s better to see the Fed cutting rates on falling inflation than to see the central bank rushing to bolster a weakened economy, he noted.
“While we are not ‘most preferred’ on small caps, they are historically cheap on a relative basis, and could snap back quickly should interest rates fall and growth remain resilient,” said Solita Marcelli, at UBS Global Wealth Management.
The S&P 500 hovered near 5,655. The Dow Jones Industrial Average rose 1.5 per cent. The Russell 2000 gained two per cent. The Nasdaq 100 was little changed. Amazon.com Inc., which kicks off its Prime Day event, outperformed. UnitedHealth Group Inc. climbed on strong results. Charles Schwab Corp. sank as new brokerage accounts missed estimates.
Treasury 10-year yields fell three basis points to 4.20 per cent. Gold hit a record high on bets the Fed will soon be able to pivot.
“Retail spending in June was expected to confirm signs of an economic slowdown, but instead has breathed new life into the argument that Fed officials don’t need to worry about a sluggish real economy yet,” said Mark Streiber at FHN Financial.
U.S. retail sales, excluding the impact of a cyberattack on auto dealerships, rose in June by the most in three months, a sign consumers regained their footing at the end of the second quarter. Total retail sales were unchanged, restrained by a two per cent slide in receipts at auto dealers. The figures aren’t adjusted for inflation.
“This report doesn’t negate expectations that the Fed will cut rates at its September meeting, unless of course inflation-related data releases indicate an uptick in prices,” said Quincy Krosby at LPL Financial.
Fed Chair Jerome Powell said Monday that second-quarter economic data has provided policymakers greater confidence that inflation is heading down to the central bank’s two per cent goal, possibly paving the way for near-term interest-rate cuts.
Corporate highlights:
• Goldman Sachs Group Inc. and Wells Fargo & Co. are joining rival JPMorgan Chase & Co. in tapping the US investment-grade bond market after reporting second-quarter earnings.
• PNC Financial Services Group Inc. notched its first increase in net interest income since the end of 2022, setting itself up for what it expects to be a record year of NII growth in 2025.
• Microsoft Corp.’s investment into Inflection AI will get a full-blown U.K. antitrust probe, after the watchdog said it needed to take a closer look at the hiring of former employees from the artificial intelligence startup.
• Philip Morris International Inc. is expanding production of Zyn in the U.S. as the popular oral nicotine pouch becomes increasingly hard to find because of soaring demand.
• Starboard Value became the third activist investor this year to take a stake in Match Group Inc., the owner of the dating app Tinder whose paying customer base has shrunk for six straight quarters.
Key events this week:
• Eurozone CPI, Wednesday
• U.S. housing starts, industrial production, Wednesday
• Fed Beige Book, Wednesday
• Fed’s Thomas Barkin speaks, Wednesday
• ECB rate decision, Thursday
• U.S. initial jobless claims, Philadelphia Fed manufacturing, Conference Board LEI, Thursday
• Fed’s Mary Daly, Lorie Logan and Michelle Bowman speak, Thursday
• Fed’s John Williams, Raphael Bostic speak, Friday
Some of the main moves in markets:
Stocks
• The S&P 500 rose 0.5% as of 11:19 a.m. New York time
• The Nasdaq 100 was little changed
• The Dow Jones Industrial Average rose 1.6%
• The Stoxx Europe 600 fell 0.2%
• The MSCI World Index rose 0.2%
• The Russell 2000 Index rose 2.3%
Currencies
• The Bloomberg Dollar Spot Index rose 0.1%
• The euro fell 0.1% to US$1.0881
• The British pound fell 0.1% to $1.2953
• The Japanese yen fell 0.4% to 158.62 per dollar
Cryptocurrencies
• Bitcoin rose 1.1% to $64,456.63
• Ether rose 0.4% to $3,450.22
Bonds
• The yield on 10-year Treasuries declined three basis points to 4.20%
• Germany’s 10-year yield declined four basis points to 2.44%
• Britain’s 10-year yield declined three basis points to 4.07%
Commodities
• West Texas Intermediate crude fell 0.8% to $81.26 a barrel
• Spot gold rose 1.5% to $2,458.39 an ounce
This story was produced with the assistance of Bloomberg Automation.
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