S&P 500 and Nasdaq Extend 2023 Gains After Positive Earnings from Banks

Barry Adams
18 Jul, 2023
New York City

Stocks powered ahead on Wall Street after investors reviewed earnings from several banks. 

The S&P 500 index and the Nasdaq Composite index advanced more than 0.5% after Bank of New York, Bank of America and PNC Financial reported better-than-expected earnings. 

Large banks are reporting higher earnings largely because of higher interest rates and deposit rate increase are still lagging higher interest rates, widening net interest rate margin. 

Banks also reported a decline in average deposits held in accounts, as investors searching for higher yields have other options including Treasury notes and bills. 

In economic news, retail sales, not adjusted for inflation, rose in June, indicating resilient consumer spending despite higher prices. 

Retail sales have been rising because in urban areas wages are faster than inflation and retail sales are not adjusted for inflation, so higher retail sales are also reflecting higher prices.   

Industrial production declined for the second month in a row in June, the Federal Reserve reported Tuesday. 

Industrial production, which includes output from manufacturing, utilities and mining, fell 0.5% matching the upwardly revised rate in May. 

Output from manufacturing declined 0.3%, mining fell 0.2% and utilities declined 2.6%. Capacity utilization decreased to 78.9%, a rate that is below its long term average by 0.8 percentage point. 

 

June Retail Sales Jumped 0.2% 

U.S. retail sales rose 0.2% in June following an upwardly revised 0.5% increase in May, the U.S. Census Bureau reported Tuesday. 

From a year ago, retail sales increased 1.5%. 

Retail sales data are not adjusted for inflation and consumer spending continues to remain resilient in the face of inflation falling to a two-year low. 

Core retail sales, which excludes automobiles, gasoline, food services and building materials rose 0.6%. 

Furniture sales rose 1.4%, electronic appliance sales increased 1.1% and sales at non-store retailers and miscellaneous stores jumped 1.9% and 2.0% respectively. 

Apparel store sales increased 0.6% and motor vehicle parts sales inched higher 0.3%. 

However, gasoline station sales declined 1..1%, building materials and garden equipment sales fell 1.2%, food and beverage store sales decreased 0.7% and sports, music and book store sales eased 1.0%. 

 

U.S. Indexes & Yields 

The S&P 500 index traded higher 0.7% to 4,555.07 and the Nasdaq Composite futures edged up 0.9% to 14,367.41.

The yield on 2-year Treasury notes decreased to 4.71%, 10-year Treasury notes inched lower to 3.78% and 30-year Treasury bonds edged down to 3.91%. 

Crude oil increased $1.77 to $75.90 a barrel and natural gas prices increased 12 cents to $2.63 a thermal unit. 

 

Stock Movers 

Morgan Stanley gained 3% to $88.88 after the financial services provider reported a smaller-than-expected decline in earnings in its latest quarter. 

The company increased its quarterly dividend by 7.5% to 85 cents a common share. payable to shareholders on record on July 31 on August 15. 

Bank of America jumped 2.5% to $30.01 after the bank reported better-than-expected revenue and earnings in its latest quarter results. 

PNC Financial Services declined 0.6% to $126.25 after the regional bank reported lower-than-expected revenue in its latest quarter. 

The bank lowered its annual net interest income increase range between 5% and 6% from the previous range between 6% and 8%.  

Microsoft Corp jumped 5% to $363.05 after the company announced a monthly $30 subscription plan for a new artificial intelligence service for Microsoft 365. 

Charles Schwab Corp soared 12.5% to $65.95 after the online broker reported a decline in earnings and revenues but quarterly results were ahead of market expectations. 

Revenue declined 9% to $4.6 billion from $5.09 billion and net income fell 28% to $1.3 billion from $1.8 billion and diluted earnings per share decreased to 64 cents from 87 cents a year ago.  

The company completed the transition of 5 million Ameritrade accounts to Charles Schwab platform in late May and all of the remaining 70% Ameritrade accounts are expected to transition over the year's end. 

 

European Markets Turned Higher, Natural Gas and Crude Oil Rebounded 

European markets were nearly unchanged and investors awaited the release of key economic data and corporate earnings later today. 

Market indexes extended lackluster trading for the second day in a row after China reported weaker-than-expected economic data. 

Market sentiment was also cautious on the growing worries that the European Central Bank is likely to keep its aggressive rate hike stance despite the raft of cooling inflation data. 

Luxury stocks traded lower in Paris and resources stocks edged down in London for the second day following the mixed economic data.  

Investors looking ahead to the start of corporate earnings season this week. 

Large and small banks are in focus and investors are looking for insights in how banks are handling the stress of rising deposit costs and losses in government bonds held by banks.  

 

Europe Indexes & Yields

The DAX index increased 0.4% to 16,125.16, the CAC-40 index advanced 0.4% to 7,319.18 and the FTSE 100 index increased 0.6% to 7,453.69. 

The yield on 10-year German Bunds inched higher to 2.37%, French bonds traded lower to 2.92%, the UK gilts edged up to 4.37% and Italian bonds increased to 4.02%.

The euro edged higher to $1.12, the British pound to $1.31 and the U.S. dollar fetched 85.80 Swiss cents

Brent crude increased $1.55 to $80.07 a barrel and the Dutch TTF natural gas increased €1.97 to €27.08 per MWh.

 

Europe Stock Movers

Novartis AG gained 3% to CHF 87.52 after the company lifted its annual earnings outlook and mapped out a plan to spin off its generic pharmaceutical division in the fourth quarter. 

The company board also approved the repurchase of $1.5 billion of its stock. 

SEB AB declined 0.6% to kr 122.65 in Stockholm trading  and the Swedish bank reported earnings ahead of market expectations. 

Danone SA declined 0.3% to €55.06 and a day ago Russia announced to takeover a stake held by the company in its Russian subsidiary. 

AstraZeneca plc gained 0.5% to 10,250 pence on a report that the U.S. Food and Drug Administration has approved the company and its partner Sanofi's antibody therapy to prevent respiratory syncytial virus in infants and toddlers.