Dow powers ahead as earnings season promises higher profits

Wall Street followed up Monday’s 320-point rise in the Dow with its first four-day rise since a similar streak ended on June 11.  

All major indexes clinched their seventh session of gains in the past eight trading days, as investors looked ahead to what is expected to be another strong corporate earnings season.

The Dow Jones Industrial Average rose 143.07 points, or 0.6%, to 24,919.66.

The S&P 500 index advanced 0.3% to 2793.84, briefly reaching its highest level at its intraday peak since March 13 when it hit 2801.90.

The Nasdaq Composite edged up 0.04% to 7759.20.

“In the absence of bad news, we drift higher because that is what our bias has been,” Fort Pitt Capital senior portfolio manager Kim Caughey Forrest says. “Yesterday's decision by the market to ignore trade [fears] was pivotal.” 

Financial sector lags
While investors are expecting another positive round of quarterly earnings reports, the financial sector is an exception. It fell 0.4% in the S&P 500, the only one of 11 sectors to do so.

A trio of giant banks – JPMorgan Chase, Citigroup and Wells Fargo —are due to reveal their results on Friday. Citigroup’s shares were off 1.1%, Wells Fargo fell 0.4% and JP Morgan shed 0.5%.

Banks have underperformed the broader market since February, as the initial euphoria over the tax revamp, expected deregulation and the strong economy dimmed. In addition, the flattening yield curve from rising interest rates is crimping lending margins and squeezing profits.

“Many bull thesis drivers were baked in and the flatter curve and tariff concerns have led to a derating,” Jefferies analyst Ken Usdin says. “Rising rates will continue to help but deposit costs are rising faster and loan growth needs to step up.”

The yields on two-year and 10-year US treasury notes rose during the second quarter but the spread narrowed to 33 basis points as of June 29 from 47 basis points as of March 29.

In bond trading, treasury prices extended their slide, pushing up yields for a second session, as a batch of auctions of government paper and moderating concerns about trade wars eased demand.

The yield on the benchmark 10-year Treasury note rose 1.1 basis points to 2.871%.

Tesla reveals China plans
In corporate news, Tesla announced plans to build a factory in Shanghai, a move expected to boost sales in the world’s largest auto market but comes amid a broader trade dispute between the US and China.

PepsiCo posted better-than-expected earnings, sending its stock up 4.1%. Beverage sales in North America fell for the fourth quarter in a row but net revenue rose, helped by the domestic snacks business and overseas divisions.

In the media sector, 21st Century Fox is preparing to counter Comcast’s latest offer for Sky with a new, higher bid, the Financial Times reported. Shares of 21st Century rose 0.7%, Comcast shares were off 0.6% and Sky’s stock in London closed 2.3% higher.

In economic news, a June report on US small business confidence showed sentiment has slipped but it’s still high by historical standards.

A May reading on US job openings fell to 6.64 million in the month from record 6.84m.

In the UK, stocks finished slightly higher in choppy action as traders reacted to political turmoil, which has raised the prospect of a new general election and more confusion in the Brexit negotiations.

The slight gain of 0.05% in the FTSE 100 added to a 0.9% rally on Monday when the pound tumbled on news Foreign Secretary Boris Johnson resigned over his disagreement with Prime Minister Theresa May’s stance on Brexit.

A weaker pound can boost the FTSE 100, as many of the index’s multinational companies generate most of their sales in other currencies.

Odds rise on UK election
Betfair’s odds on a probability of a vote this year rose to 40% compared with 17% before the weekend.

Analysts say the government crisis could make a “no-deal” Brexit outcome more likely and send the UK out of the European Union without a trade agreement.

“For the moment, peering into the future in Westminster is no easier than it is in the arena of the financial markets,” AJ Bell investment director Russ Mould says.

“As such, the best thing investors can do is sit tight and not be diverted from their long-term plan and portfolio allocation – if nothing else this will avoid incurring unnecessary dealing costs, taxes and commissions.”

For the first time, the UK’s Office for National Statistics released a monthly GDP figure instead of its usual quarterly numbers. It showed the economy expanded 0.2% in the three months to May, up from flat growth in the three months to April.

UK car exports fall
The trade deficit widened by £5 billion to £8.3b over the same period as car exports fell.

Production fell by 0.4% in May, missing an estimate of a 0.6% rise. Manufacturing output rose 0.4%, coming in short of a 0.7% forecast.

In Europe, the Stoxx 600 advanced 0.4%. France’s CAC 40 rose 0.7% and Germany’s DAX added 0.5%.

In commodities, oil futures edged higher, with the global benchmark tapping highs near the $US80 a barrel threshold, as strikes by workers in Norway and Gabon added to global production outages.

US crude for August rose 0.3%, to $US74.5 a barrel while September Brent crude, the global benchmark, climbed 0.9% to $US78.77, after trading as high as $79.51.

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