Stocks ended lower Thursday, snapping the longest winning streak for the S&P 500 in three months, as investors picked through a key inflation reading and the start of the second quarter earnings season.
The Dow Jones Industrial Average gained 32.39 points, or 0.08%, to finish the session at 39,753.75, while the S&P 500 slipped 0.88% to 5,584.54 and the tech-heavy Nasdaq lost 1.95% to end the day at 18,283.41.
June CPI was pegged at 3%, down from 3.3% in May, with monthly prices falling by 0.1% amid a big decline in gas prices. Core inflation eased to 3.3%, just inside Street forecasts, and was up just 0.1% on the month.
Jamie Cox, managing partner for Harris Financial Group, said the inflation fight is entering a new phase as the data clearly demonstrate--the economy is cooling and so is inflation.
“The Federal Reserve's real test now is to find the equilibrium rate where growth and inflation remain in check and hope that the fiscal side of the equation doesn't torpedo their efforts,” he said.
“With a major deficit fight looming in 2025, chances are the Fed will have to be more aggressive than folks currently appreciate," Cox said.
Updated at 4:30 p.m. EDT
Bring on the Banks
The big banks are set to kick off earnings season on July 12, when JP Morgan, Wells Fargo and Citigroup report quarterly results.
Analysts have recently become less optimistic about JP Morgan Chase’s (JPM) second-quarter profit.
In the past 30 days, the consensus analyst earnings forecast for JP Morgan has dropped to $3.87 from $4.61. And analysts' average price target is now $194.20, below its Thursday closing price of $207.45. Second-quarter revenue is estimated at $39.15 billion.
Wells Fargo’s story is different. Analysts' average price target is $64.03, above the $60.16 at the Thursday close. The bank has beaten earnings estimates in each of the past four quarters. Wall Street expects it to deliver earnings per share of $1.29 on revenue of $20.29 billion.
Citigroup revenues increased quarter-over-quarter in Q1. Of 29 analysts polled by Yahoo Finance, 17 rate Citi strong buy or buy. Estimates for Q2 are earnings per share of $1.39 on revenue of $20.07 billion. Citi shares closed Thursday at $65.71.
Investors should consider how high interest rates affected the banks last quarter.
Many banks are locked into government bonds with low interest rates issued a few years back. Given higher interest rates and inflation, banks are doing everything possible to avoid a Silicon Valley Bank-like situation from occurring again.
It will also be important to hear what they say about commercial real estate demand. Higher vacancy rates post-Covid have dinged commercial real estate valuations, prompting losses in what once was a revenue stream for banks.
Updated at 11:09 AM EDT
Russell surge
The Russell 2000 index, which focuses on small-cap stocks, was marked 3.3% higher in early trading, testing levels last seen in January of 2022, as investors rotate out of megacap tech and rate-sensitive names following the softer-than-expected June inflation report.
Smaller company stocks, which are more reliant on bank loans than the bond market for their overall financing, will tend to outperform when investors see base rates and capital costs moving lower.
$SPX continues to pullback from record highs while $RUT small cap index rips higher. Small cap traders still asleep as many micro caps haven't moved yet pic.twitter.com/u1ya4KWzBk
— Reformed Tr🅰️der (@Reformed_Trader) July 11, 2024
Updated at 10:51 AM EDT
Red mist
Stocks are turning lower into the late-morning session, with the S&P 500 falling 22 points, or 0.4%, and the Nasdaq sliding around 1%, as investor take some profits from the market's longest winning streak in three years following Friday's bullish inflation report.
"Today's CPI release should offer more confirmation for the data dependent - and hesitant - Fed to begin the interest rate easing cycle at its September meeting," said Quincy Krosby, chief global strategist for LPL Financial in Charlotte.
"Still, the Fed could very well lower rates sooner than September if the labor market softens at a faster clip. Fed Chair Powell has increasingly invoked the Fed's maximum employment mandate as a rationale for lowering rates if necessary to support the labor market, and hence the economic backdrop," she added.
The market is now saying there's an 87% probability of a Fed Rate Cut in September, up from 73% a day ago and 50% a month ago. https://t.co/GlCgkDij8R pic.twitter.com/yhLbb4KfbT
— Charlie Bilello (@charliebilello) July 11, 2024
Updated at 10:20 AM EDT
Pfizer (weight loss) gain
Pfizer (PFE) shares were a notable early mover, and nudged into positive territory for the year, after it released positive data from an early-stage trial for its pill form weight loss drug.
Pfizer shares were last marked 0.85% higher and changing hands at $28.59 each.
Related: Pfizer stock leaps on obesity drug challenge to Ozempic, Zepbound
Updated at 9:55 AM EDT
Mixed open
The S&P 500 was marked just a few points higher in the opening minutes of trading, with the Nasdaq down 35 points, or 0.19%, and the Dow up 75 points.
S&P 500 Opening Bell Heatmap (Jul. 11, 2024)$SPY +0.02%🟩$QQQ -0.02%🟥$DJI -0.09%🟥$IWM +2.10%🟩 pic.twitter.com/w2LRqeSEYE
— Wall St Engine (@wallstengine) July 11, 2024
Updated at 8:50 AM EDT
Soft inflation reading
The Commerce Department reported the softest monthly reading for headline inflation in three years last month, adding to bets for an autumn Fed rate cut.
June CPI was pegged at 3%, down from 3.3% in May, with monthly prices falling by 0.1% amid a big decline in gas prices.
Core inflation eased to 3.3%, just inside Street forecasts, and was up just 0.1% on the month.
U.S. stock futures turned higher immediately following the data release, with futures contracts tied to the S&P 500 indicating a 15 point opening bell gain.
The Dow Jones Industrial Average, meanwhile, is priced for a 90 point gain while the rate-sensitive Nasdaq is called 70 points higher from last night's fresh record peak.
Benchmark 10-year Treasury note yields fell 8 basis points following the data release to change hands at 4.202% while 2-year notes were pegged 11 basis points lower at 4.513%.
Select CPI categories … auto insurance continue to bite, while used cars/airfares/gasoline help pic.twitter.com/yk3xHPEQ1E
— Liz Ann Sonders (@LizAnnSonders) July 11, 2024
Stock Market Today
Stocks extended their winning ways again last night, with the S&P 500 rising 1.02% to close above the 5,600-point mark for the first time and take its run of consecutive session gains to seven, the longest since 2021.
It was a similar story for the Nasdaq, which keyed off record highs for Apple and the ongoing surges in Nvidia (NVDA) and Tesla (TSLA) shares. The index rose 1.18% to a record 18,647.5 points while extending its 2024 gain to just over 24.2%.
Stocks are largely flat ahead of today's crucial June inflation report. Investors are looking to pair the recent dovish signaling from Federal Reserve Chairman Jerome Powell, who wrapped up two days of testimony on Capitol Hill yesterday, with data that are likely to show further easing in overall price pressures.
Headline CPI is forecast to ease to 3.1%, the lowest since last fall, while the closely tracked core reading is likely to hold at 3.4%, a level that remains well above the Fed's preferred 2% target.
Treasury bond yields are easing into the reading as well. Benchmark 10-year notes were pegged at 4.278% following yesterday's $39 billion auction of new paper, which drew solid demand and an increase in foreign buyers. The demand suggested that investors are bullish on the prospects of lower inflation over the coming months.
Benchmark 2-year note yields were little changed at 4.264% while the U.S. dollar index slipped 0.16% against a basket of its global peers to trade at 104.880.
Related: Goldman Sachs on 'correction watch' as stocks track CPI, Powell shift
On Wall Street, futures contracts tied to the S&P 500, which is now up just over 18.1% for the year, are priced for a modest 4-point pullback. Those linked to the Dow Jones Industrial Average, which closed just under the 40,000-point mark last night, suggest a 33-point pullback.
The Nasdaq, meanwhile, is called 20 points lower heading into today's inflation report and weekly jobless claims figures, both of which will be released at 8:30 a.m. U.S. Eastern Time.
PepsiCo (PEP) kicked off second-quarter earnings season with a stronger-than-expected bottom line of $2.28 a share, but its stock was marked 1.75% lower as revenue came in light of Wall Street forecasts at $22.5 billion.
Costco (COST) shares, meanwhile, jumped 3.1% and look set to open at a record after the membership-based discount retailer posted solid June sales and lifted its overall membership fees for the first time since 2017.
Related: Costco unveils major membership fee update
Delta Air Lines (DAL) shares slumped 6.3% after it posted modestly weaker-than-expected second-quarter earnings of $2.36 a share while issuing muted near-term guidance on fare revenue.
More Wall Street Analysts:
- Analyst revisits Nvidia stock price target after Blackwell checks
- Analysts prescribe new Walgreens stock price targets after earnings
- Analyst revises Facebook parent stock price target in AI arms race
In Europe, the regionwide Stoxx 600 was marked 0.45% higher in Frankfurt. Britain's FTSE 100 rose 0.37% in London following a stronger-than-expected reading for June GDP growth that could tame expectations for a Bank of England rate cut.
Overnight in Asia, Japan's Nikkei 225 printed another all-time high, rising 0.94% to close at 42,224.02 points thanks to more outsized gains for tech and chip stocks and a weaker yen.
The regional MSCI ex-Japan benchmark, meanwhile, was marked 1.33% higher following a record close for stocks in Taiwan and the highest levels for the broadest gauge of world stocks in 14 years.
Related: Veteran fund manager sees world of pain coming for stocks
