Bank earnings extend the equity rally further

US equities extended a mid-summer rally Tuesday, as the S&P 500 Index, Nasdaq, and Dow Jones Industrial Average rose for a sixth day and posted fresh 15-month highs with stronger-than-expected quarterly results from big banks fueling bullish momentum. A number of earnings beats from financial companies, including Bank of America and Morgan Stanley, suggested the industry has finally moved on from a tumultuous spring.  Meanwhile, weaker-than-expected June retail sales could bolster the case that the Fed’s rate hikes have worked as expected to slow the economy without tilting it into a deep recession.  In Europe, equities markets got a boost after the US opened, with the Euro Stoxx 50 reversing earlier losses to end Tuesday’s session up 0.3%. 

Summary for 19.07.2023 

• Most Asian shares rose on Wednesday after data released overnight spurred increased bets that the Federal Reserve was close to ending its current rate hike cycle, while Chinese markets continued to lag on a worsening economic outlook.  
• European and US equity futures were steady this morning as traders assessed China’s economic outlook and corporate results. Wednesday’s earnings calendar includes Goldman Sachs and IBM, along with Alcoa, Netflix, and Tesla.  Investors also await updated inflation figures from both the UK and the Euro Area, which are due later today. 
• Oil prices moved little in Asian trade this morning after strong gains in yesterday’s session, as traders awaited more signals on stimulus spending in major importer China, while official data on US inventories was also due later in the day. 

• June retail sales in the US rose 0.2% from May – lower than analyst expectations for a gain closer to 0.5%. However, while the numbers were softer than expected, there were some bright spots: retail sales have now posted three straight monthly gains after dropping in four of the five prior months.  The data also appears to reinforce the notion that the Fed may be able to engineer a “soft landing” for the US economy, where job growth and inflation slow but a deep recession is avoided. 
• Bank of America shares rallied by over 4% in Tuesday’s session after the company reported quarterly revenue of $25.33 billion, higher than analysts expected, and a 14% increase in net interest income, reflecting the effect of higher rates. 
• Morgan Stanley shares also reacted positively to second-quarter results, as the shares surged over 6%.  The bank reported an EPS of $1.24 and revenue of $13.46 billion, both above Wall Street expectations. 
• Lockheed Martin shares ended down 3% yesterday even after the aerospace company’s quarterly earnings per share at $6.73 topped expectations by nearly 20 cents.  Shares of other defence contractors were also under pressure amid analysts’ beliefs the sector is out of favour in part due to delays in fighter jet deliveries. 
• Microsoft shares rose 4% and closed at a record near $360 after the company announced pricing for its Al Copilot tool, and, separately, announced an expanded partnership with Meta Platforms to make the Facebook parent’s open-source large language model available on Azure and Windows. 

• UnitedHealth shares rose over 3% yesterday after the equity was upgraded to “outperform” from “market perform” by Bernstein, which cited an attractive valuation and long-term growth prospects. 
• Renault this morning said its worldwide sales rose 13% in the first six months of the year, with a 24% increase in Europe.  The company, which in June raised its 2023 outlook thanks to cost cuts and the success of new models, sold 1,133,667 vehicles between January and June, compared to 1,000,199 units in the same period of 2022.  The rebound in sales comes after four consecutive years of declines.