Stocks Rise as Wall Street Banks Achieve Two-Year High

Stock markets saw a positive trend as Wall Street banks reported robust results, propelling stock prices to new heights. The S&P 500 index increased by 0.6%, marking its fifth consecutive week of gains, the longest streak since May.

Market Performance Overview

On October 14, 2024, stocks experienced an upward movement as the earnings season began. The S&P 500 surpassed 5,800 points, achieving its 45th record high this year. Initially, investors were concerned that anticipated cuts to the Federal Reserve's rates could negatively affect bank revenues, but results from major banks alleviated those fears.

JPMorgan Chase & Co. surprised observers by showing a rise in net interest income, even as Wells Fargo & Co. reported a decline but expressed optimism about a less significant drop in the upcoming quarter. Both banks saw their stock prices increase by at least 4.4%, leading the KBW Bank Index to reach levels not seen since April 2022.

Key Insights from Analysts

Analysts expect this earnings season to be promising. Michael Landsberg, the Chief Investment Officer at Landsberg Bennett Private Wealth Management, indicated that low credit card delinquencies combined with economic growth should boost bank revenues.

As the S&P 500 continued to climb, the Nasdaq 100 gained 0.1%, the Dow Jones Industrial Average rose by 1%, and the Russell 2000 jumped by 2.1%. In contrast, Tesla Inc. dropped by 8.8% after its Robotaxi reveal lacked detailed specifications, while competitors Uber and Lyft surged over 9.5%.

Bond Market and Economic Indicators

The bond market showed modest movements, with shorter-term bonds performing better. A benchmark for US bonds recorded its fourth consecutive week of declines. The US dollar remained stable, reflecting a second consecutive week of gains amid expectations of a slower rate cut pace. Meanwhile, West Texas Intermediate oil prices settled just below $76 per barrel.

Potential Economic Impact of Rate Cuts

Analysts foresee that the commencement of the Federal Reserve’s rate-cutting cycle could stimulate the economy further, particularly aiding consumer debts such as credit cards and business loans. David Lefkowitz from UBS Global Wealth Management emphasized that, historically, the S&P 500 tends to rise an average of 17% in the year following the start of rate cuts, provided the economy does not enter a recession.

In light of this, Lefkowitz has set ambitious S&P 500 targets of 5,900 by December 2024 and 6,200 by June 2025.

Sector Performance Forecasts

Torsten Slok from Apollo noted that financial stocks usually thrive during periods of rate cuts that conclude without a recession. A review of previous rate-cut cycles revealed that financials often lead in performance.

As the third-quarter earnings season approached, a noteworthy contrast emerged. Analysts were consistently lowering expectations for S&P 500 companies, whereas management forecasts suggested a more favorable outlook, indicating potential for companies to exceed these lowered expectations.

Current Earnings Predictions

Presently, net income growth for the S&P 500 in the third quarter is anticipated at a modest 4.2%, down from earlier expectations exceeding 7%, primarily influenced by the energy sector's performance. Overall, forecasts for earnings have dimmed across almost all sectors, with only the communication services sector seeing an uptick.

Notably, 37% of S&P 500 companies are now predicted to report lower earnings per share than in the previous year during this quarter, an increase from 26.6% in the last quarter. This reflects both a cautious outlook and the realities facing several sectors.

Stocks, Banks, Earnings