4.15pm:
The Dow surged over 700 points on Tuesday to close at an all-time high.
At the close, the Dow had gained nearly 1.9% to finish at 40,928 while the S&P 500 also set a record at 5,667 for a 0.6% rise and the Nasdaq reversed earlier losses to finish 0.2% ahead at 18,509.
The rally was driven by optimism around potential Fed rate cuts, reinforced by flat but better-than-expected June retail sales data.
Positive earnings reports, notably from UnitedHealth, boosted the blue-chip index by 1.8%, with stocks closing broadly higher.
Bank of America and Morgan Stanley (NYSE:MS) posted better-than-expected profits, signaling an investment banking revival.
12.30pm: September rate cut priced in
On Tuesday afternoon, US stock markets showed a mixed performance as investors digested earnings reports from major banks and unexpected retail sales data, which reinforced expectations of an imminent interest rate cut.
The Dow Jones Industrial Average surged over 1.4%, setting a new record above 40,000, driven by strong earnings from UnitedHealth. Meanwhile, the S&P 500 edged up by about 0.3%, while the Nasdaq Composite dipped 0.3%.
Bank of America and Morgan Stanley (NYSE:MS) reported earnings, with BofA surpassing profit estimates despite a decline, and Morgan Stanley posting a significant profit increase, indicating strength in investment banking.
Federal Reserve Chair Jerome Powell's hints of potential rate cuts, coupled with resilient inflation data and better-than-expected retail sales for June, bolstered confidence in a rate cut as early as September, fueling overall bullish sentiment in the stock market.
The retail spending report indicates “a solid increase in consumer spending on goods in the second quarter,” according to Bill Adams, chief economist for Comerica Bank.
“While the economy has downshifted from the strong growth seen in the second half of 2023, this doesn’t look like a recession,” Adams commented.
“In fact the economy is in pretty good shape. There are signs of softness around the edges where low and moderate income consumers are pulling back, like the weakness of food service and drinking place spending in the first half of this year.
“But openhanded spending by affluent consumers is keeping the economy as a whole moving forward.”
10.40am: Nasdaq falls as Nvidia slides
A 2% fall in Nvidia dragged the Nasdaq index into the red, down 0.3% at one point, but now flat again.
Many of the big tech names are in the red, with Microsoft down 1.2%, Meta down 1%, Tesla down 1.8%, Broadcom 1.5%, AMD 2.4%.
9.55am: Russell 2000 in the lead again
US stocks have opened higher this morning, led by the Dow Jones and the small caps of the Russell 2000.
The blue-chip Dow is up 0.94%, led by UnitedHealth Group, IBM and Amazon.
Next is the S&P 500, up 0.38%, while the Nasdaq Composite is up 0.25%.
The Russell 2000 has jumped 1.36%, putting it on track for its fifth 1%-plus day in a row.
9am: Thoughts on the retail sales data
Although retail sales were unchanged in June, there was a 0.9% month-on-month rise in control group sales.
This strong growth in the control group "should ease concerns about the plight of the consumer in the wake of the renewed slump in sentiment", says Paul Ashworth at Capital Economics.
"Admittedly, both second-quarter consumption and GDP growth still appear to have been no better than 2% annualised, but the strong gain in June does set up for a better third quarter performance."
He says the 2.0% monthly decline in motor vehicle sales values was a "little bigger than we expected" and the 3.0% fall in gasoline station sales was "a bit on the high side given the size of the drop back in gasoline prices".
A 1.4% rise in building material sales suggested warm weather last month may have provided a boost, but didn’t do much for food services sales, up 0.3%.
The surge in control group sales was led by a 1.9% rise non-store retail, which Ashworth said was enough to push the three-month-on-three-month annualised growth rate back to 3.3%, from a low of 1.3% back in March.
James Knightly at ING says challenges for the retail sector remain from weak real income growth, a run down in savings levels and high borrowing costs.
Looking ahead to next week’s GDP report, he says this is set to confirm that "the run rate on real consumer spending growth has halved between second half 2023 and first half 2024 and we expect it to cool further through the rest of this year".
He says flat real household disposable incomes are constraining spending power, with the exhaustion of pandemic-era accrued savings resulting in less spare cash to keep spending going.
"High consumer credit costs make borrowing to fund spending painfully expensive too. Coupled with declining consumer confidence readings amid rising unemployment rates and it all points to a consumer sector that is becoming more cautious."
8.43am: Retail sales flat
Stock futures have perked up further after US retail sales came flat for June, better than expected.
New US Census Bureau data shows US retail sales in June were unchanged month on month, while the market had forecast a 0.3% drop. May's figure was revised to a 0.3% increase.
Excluding automobiles, sales were up 0.4%, improving from the revised 0.1% rise the prior month and beating the 0.1% consensus estimate.
In futures markets, the Dow Jones and Nasdaq 100 are both seen up more than 0.3% with S&P futures up 0.26%.
8.10am: What to watch in earnings season
With US equities trading at all-time high levels as the second-quarter earnings season kicks off in earnest this week, and the S&P 500 index already up 18.1% so far this year, "investors will be looking for evidence that can sustain the rally further", says UBS chief investment officer Mark Haefele.
He has outlined a number of factors that he expects could "shape market sentiment" during earnings season, including a higher pace of growth, and how the AI trend is developing.
UBS expect the fastest earnings growth in over two years, with S&P 500 earnings predicted to grow 10-12% on a year-over-year basis, which would represent a 2-3% beat to Wall Street consensus forecasts. If the Swiss bank is correct, it would be the strongest growth rate since the start of 2022.
If correct, it would also be likely to a result of a broadening in earnings growth to companies outside the Magnificent 7, in what Haefele says would be the first quarter of positive EPS growth since 2022.
Artificial intelligence is the next trend, specifically, how companies are monetising it. "We believe the debate around AI capex versus monetization will take center stage for AI-related companies during this earnings season, after a significant upward revision in big tech’s capex during the last quarter’s results." Just beating profit expectations "may not be enough" to lift tech shares, he adds, with management also needing to provide insights about future revenue and capex trends. This "will likely matter more, in our view".
Volatility, as measured by the VIX index, which picked up yesterday, could rise more amid the uncertain political environment. "The attempted assassination of former US President Donald Trump over the weekend has added another layer of complexity to an already tumultuous election season, and we expect further market volatility as the presidential campaigns continue," says Haefele.
7.15am: Dow Jones and Nasdaq tipped to lead gains
US stocks are expected to head higher again on Tuesday, with retail sales data and more corporate earnings adding further fuel for markets.
Having closed at a new high yesterday, the Dow Jones is being tipped on futures markets to add another 0.53% today.
S&P 500 futures are up 0.28% and those for the Nasdaq Composite are up 0.40%.
Russell 2,000 futures are up 1% pre-market, which if comes to pass by the close, will be the fifth day of 1% gains.
US politics is currently providing some upward impetus for markets, suggests Kenny Polcari, market strategist at Slatestone Wealth: "The idea that we could see a GOP victory in November means more favorable tax policies, less gov’t spending and better overall fiscal policies and so investors are betting with their wallets taking stocks to new highs."
Pre-market earnings arrived early from Bank of America, followed by Morgan Stanley (NYSE:MS), Charles Schwab and State Street also due today.
Bank of America Corp (NYSE:BAC) reported a fall in profit for the second quarter as its interest income dropped and it made more provisions for potential loan losses, however earnings were better than Wall Steet expected.
Earnings per share fell to $0.83 from $0.88 a year ago, but this topped the $0.80 consensus forecast, as revenues rose 1% to $25.4 billion, also beating estimates of $25.22 billion.
Morgan Stanley (NYSE:MS) earnings came in at $1.82, well ahead of the $1.65 consensus, as revenues beat at $15 billion versus $14.3 billion.
After a 9% spike in the share price on Monday, shares in Tinder owner Match Group Inc (NASDAQ:MTCH) look set to open a further 8% higher on the back of activist interest.
As for macroeconomic data, the latest US retail sales figure in an hour's time will bring "a fresh insight into the US consumer at a key moment," says analyst Josh Mahony at Scope Markets.