Stocks Gain As Wall Street Banks Hit Two-Year High: Markets Wrap

The stock market showed positive momentum as Wall Street banks reached a two-year high, marking a solid starting point for the earnings season. The S&P 500 index rose by 0.6%, extending its gains into a fifth consecutive week, which is the longest winning streak since May.

Market Performance Overview

The latest earnings report revealed big banks delivering strong results. The S&P 500 index climbed above 5,800, achieving its 45th record high in 2024. There were initial concerns among equity traders regarding potential profit declines for banks with the Federal Reserve initiating rate cuts. However, better-than-expected results from JPMorgan Chase & Co. reassured investors as the bank reported an unexpected rise in net interest income.

On the other hand, Wells Fargo & Co. did experience a decline in net interest income, yet the company anticipates a less severe drop in the last quarter of the year. Following these updates, both banks' stocks rose by at least 4.4%, causing the KBW Bank Index to reach its highest level since April 2022.

Market Experts' Insights

Experts are optimistic for the earnings season, particularly concerning major banks. Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, stated, "We expect earnings season to be solid, including the big banks. Credit card delinquencies remain low, and increasing economic activity is expected to boost bank revenues."

Furthermore, the S&P 500's 0.6% rise this week, continued its streak of positive performance. The Nasdaq 100 also saw a slight increase of 0.1%, and the Dow Jones Industrial Average rose by 1%. Conversely, Tesla Inc. experienced an 8.8% drop after its Robotaxi announcement lacked specific details, while ride-hailing giants Uber Technologies Inc. and Lyft Inc. surged by over 9.5%.

Bond Market Trends

In the bond market, there were modest movements, with shorter-dated securities performing better than their longer-term counterparts. A Bloomberg index measuring US bonds recorded a fourth consecutive week of declines. The US dollar remained stable amidst these changes, contributing to a second week of gains in anticipation of a slower pace of rate cuts. At the same time, West Texas Intermediate crude oil prices fell below $76 a barrel.

Future Outlook

David Lefkowitz from UBS Global Wealth Management mentioned, "With the Fed entering its rate-cutting cycle, lower interest rates on credit card debt and business loans are likely to further boost the economy." He believes that the upcoming third-quarter earnings will mirror recent positive trends in the market.

Historically, in non-recessionary scenarios, the S&P 500 typically sees an average increase of 17% in the twelve months following the Federal Reserve's initiation of rate cuts. Lefkowitz also provided price targets of 5,900 and 6,200 for the S&P 500 by December 2024 and June 2025, respectively.

Apollo’s Torsten Slok remarked on the strong performance of financials during previous rate-cutting cycles that ended without a recession. This is echoed by the analysis of total sector returns during two prior rate-cutting cycles, emphasizing a generally favorable environment for financial stocks.

Earnings Expectations

As the third-quarter earnings season approached, a notable disparity emerged. Analysts appeared to be lowering expectations for S&P 500 companies, while at the same time, company management projections indicated a much brighter outlook. This could lead to many companies surpassing analysts’ estimates.

Currently, projections for S&P 500 net income growth have been revised down to 4.2% for the third quarter, a notable drop from the previous expectation of over 7%. This adjustment primarily stems from challenges facing the energy sector, but similar downward revisions have occurred across almost all sectors, as analysts noted a souring outlook with the exception of communication services. Additionally, a growing portion of S&P 500 companies, now 37%, are anticipated to report lower earnings per share compared to last year, an increase from the 26.6% recorded in the previous quarter.

Stocks, Market, Earnings