The stock market rallied on Monday to kick off a big week of earnings as the latest quarterly results from big banks provided further clues about the health of the economy, with investors now expecting the Federal Reserve to be less aggressive about hiking rates at its upcoming policy meeting.
Markets jumped to start the week: The Dow Jones Industrial Average rose 1%, over 300 points, while the S&P 500 gained 0.9% and the tech-heavy Nasdaq Composite 1.2%.
Investors assessed the latest second-quarter earnings from major banks, with shares of Goldman Sachs gaining roughly 4% after the firm exceeded revenue and profit expectations thanks to “significantly higher” bond trading activity, though overall profits fell almost 50% from a year ago.
Bank of America similarly topped revenue expectations thanks to solid results that were boosted by higher interest rates, with the stock rising nearly 3% despite warnings of a “weakened capital markets environment.”
Though recession fears have continued to weigh on markets, earnings are yet to show signs of a major slowdown—with S&P 500 companies still expected to post increases in second-quarter profits and revenue, according to FactSet data.
Traders are now betting that the Federal Reserve will be less aggressive than previously feared at its upcoming policy meeting later this month: While some forecasts last week had called for a 100 basis point rate increase, most experts now predict a 75 basis point rate hike.
The Wall Street Journal reported on Sunday that the central bank will raise interest rates by 75 basis points for the second straight meeting in a row, a sentiment echoed by Goldman Sachs chief economist Jan Hatzius in an overnight note to clients.
“Inflation and policy tightening led us into this mess, and so both will need to change in order for stocks to find a sustainable floor and rally,” says Vital Knowledge founder Adam Crisafulli. “Thankfully, that change is approaching – core inflation is already cooling, and headline prices are set for a significant hit as the recent drop in commodity prices works through the data,” he says, predicting that Fed policy should go in a more “dovish direction” by September.
Oil prices jumped over 3% on Monday, continuing a recent rally. A weaker dollar and tight global supply both helped drive prices higher, helping offset investor concerns about demand taking a hit from a recession or additional Covid lockdowns in China. The price of U.S. benchmark West Texas Intermediate now trades at around $101 per barrel, while international benchmark Brent crude sits at $105 per barrel.
WHAT TO WATCH FOR:
A host of big companies report earnings this week, including the likes of Johnson & Johnson, Netflix, Lockheed Martin, Tesla, United Airlines, Verizon and Twitter, among others.