S&P 500 Gets Above 3850 As Bank Stocks Rally

Key Insights

• Retail Sales and Consumer Sentiment report exceeded analyst expectations, which was bullish for S&P 500. 
• A strong rally in bank stocks provided significant support to the market. 
• Trading will remain volatile ahead of the Fed meeting on July 27.

Retail Sales And Consumer Sentiment Reports Beat Expectations

S&P 500 gained strong upside momentum as economic reports indicated that the economy remained in a decent shape despite recession worries.

U.S. Retail Sales increased by 1% month-over-month in June, compared to analyst consensus of 0.8%. The preliminary reading of the Michigan Consumer Sentiment report showed that Consumer Sentiment increased from 50 in June to 51.1 in July, while analysts expected that it would decline to 49.9.

Meanwhile, Industrial Production and Manufacturing Production reports were worse than expected. Industrial Production declined by 0.2% month-over-month in June, while Manufacturing Production decreased by 0.5%.

Traders ignored these weak reports and focused on the better-than expected Retail Sales and Consumer Sentiment reports. It looks that declining probability  of a 100 bps rate hike at the next Fed’s meeting served as the key catalyst for market optimism.

Traders Shrug Off Recession Worries

While stocks are moving higher, traders should note that markets continue to prepare for a potential recession. The 2-year Treasury yield is fluctuating near the 3.10% level, while the yield of 10-year Treasuries is near 2.90%. Typically, an inverted yield curve serves as a reliable indicator of an upcoming recession.

Copper, which is sensitive to global economic outlook, has tested new lows today. Falling copper prices also point to the potential recession.

Today, recession worries were offset by the strong reports from Citigroup and Wells Fargo. These stocks have been under pressure for months, and traders rushed to buy them when the reports indicated that the situation was not as bad as the market expected. In fact, Wells Fargo stock gained 7% despite missing analyst estimates, which shows that market’s expectations were even lower.

From a big picture point of view, trading will likely remain volatile ahead of the Fed meeting at the end of this month.

For a look at all of today’s economic events, check out our economic calendar.