Stocks Rise as Investors Increase Bets for Strong Earnings Season

U.S. equity markets rallied into record territory on Friday as investors brushed off weak economic data while increasing bets for a strong earning season.

Although the NASDAQ Composite outperformed the major indexes, at the end of the session, the S&P 500 Index was sitting at a new all-time high close after setting a new intraday record. The Dow Jones Industrial Average also posted an intraday record before also closing at a new record.

In the cash market, the benchmark S&P 500 Index settled at 2459.27, up 11.44 or +0.47%, the blue chip Dow Jones Industrial Average ended the session at 21637.74, up 84.65 or +0.39% and the tech-based NASDAQ Composite closed the day at 6311.44, up 37.00 or +0.59%.

The indexes were underpinned from the opening after JPMorgan Chase, Citigroup and Wells Fargo all posted better-than-expected profits. However, these gains couldn’t be sustained and JPMorgan and Citigroup retreated from their highs in reaction to declines in trading sales.

Investors also reacted to disappointing economic data on consumer inflation and retail sales. The reports caused a drop in U.S. Treasury yields which encouraged investors to buy stocks.

U.S. Economic Data

U.S. consumer inflation was unchanged in June and retail sales fell for a second straight month. The weak reports could diminish prospects of a third interest rate hike from the Federal Reserve later this year.

According to the U.S. Labor Department, consumer inflation, or the CPI came in at 0.0 percent, better than the previous -0.1 percent, but below the 0.1 percent estimate. Core CPI rose 0.1 percent, unchanged from the previous month, but below expectations. The government blamed the drop in inflation on lower gasoline and mobile phone services prices.

Further analysis showed that CPI increased 1.6 percent in the 12 months through June, the smallest gain since October 2016, after rising 1.9 percent in May. The year-on-year CPI has been drifting lower steadily since February, when it reached 2.7 percent.

The U.S. Commerce Department said on Friday retail sales fell 0.2 percent in June, weighed down by receipts at service stations.

Retail sales in May were revised lower to show a 0.1 percent dip instead of the previously reported 0.3 percent drop. Retail sales rose 2.8 percent year-on-year in June.

Gold

The weaker-than-expected economic data drove down U.S. Treasury yields, making the U.S. Dollar a less-attractive investment, while increasing demand for dollar-denominated gold from foreign investors. Gains were limited, however, by increased demand for higher-yielding assets like stocks.

Crude Oil

Crude oil prices finished the session higher, capping the week with a 5.2% gain. The catalyst behind the rally was signs of increased demand. Investors shrugged off news of high global inventories and concerns about economic growth all week.

The market also managed to overcome the Baker Hughes weekly rig count which showed operating rigs in the U.S. rose by 2 rigs to a total of 765.