What will the markets do for an encore after hitting all-time highs last week?
The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all touched all-time highs last week in what was a record week for stocks.
The S&P 500 rose 0.9% to close at 5,615 on Friday. Just two days earlier, it had reached an all-time closing high of 5,634 on July 10.
The Nasdaq Composite ticked up 0.2% to finish the five-day period at 18,398. It also reached a record high on Wednesday, closing at 18,647.
The Dow Jones finished the week back at 40,001, the first time it breached the 40,000 barrier since May. While the 40,001 was not a closing high, it did set an all-time high of 40,257 on Thursday before falling back a bit.
There were two major catalysts for all three benchmarks last week. The first was the testimony by Federal Reserve Board Chair Jerome Powell before Congress. He spoke before the Senate on Tuesday and the House on Wednesday, and his comments left investors more confident that rate cuts were coming.
Specifically, Powell talked about how the labor market had cooled to the point where it was in better balance, back to where it was before the pandemic. It is a sign that monetary policy is working to cool the economy.
Powell is scheduled to speak Monday at 12:30 p.m. ET at the Economic Club in Washington, D.C. — his first address since inflation fell to 3%.
The other major catalyst came on Thursday, and it concerned inflation.
Inflation rate drops for third straight month
The Consumer Price Index (CPI) for June came out on Thursday, one day before Powell’s address to the House, and it was also good news. The 12-month inflation rate dropped to 3%, which beat estimates and was down from 3.3% in May. It was the lowest inflation had been in a year, and it was the third straight month that the CPI had declined.
The markets rose on this report, as it was further evidence that inflation was moving sustainably toward the target of 2%, as measured by Personal Consumption Expenditures (PCE) data. The June PCE report comes out on July 26. Last month, the PCE was at 2.6%, and given the CPI numbers in June, it is anticipated that the PCE will drop lower, too.
Following the positive inflation data, the odds of a rate cut in September rose to over 80%, according to CME FedWatch, and the chances of a second cut this year rose to around 50%.
Earnings this week
The record highs of last week have created some momentum for this week. This is the first full week of earnings reports for the second quarter, and already, several of the big bellwether financial stocks, including JPMorgan Chase (NYSE:JPM), BlackRock (NYSE:BLK), and Goldman Sachs (NYSE:GS) have posted strong results.
Also due this week is Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS), and Progressive (NYSE:PGR) on Tuesday; Johnson & Johnson (NYSE:JNJ), Ally Financial (NYSE:ALLY), and U.S. Bancorp (NYSE:USB) on Wednesday; Netflix (NASDAQ:NFLX) and Domino’s Pizza (NYSE:DPZ) on Thursday; and American Express (NYSE:AXP) on Friday.
