All three major stock indexes closed at their highest levels in 15 months, driven by gains in banks and technology stocks. This positive momentum was supported by upbeat corporate earnings reports, despite cautious retail sales data for June, which indicated that U.S. consumers were more careful with their spending.
On Monday, the Dow Jones Industrial Average rose 76 points, or 0.22%, to 34,585, while the S&P 500 increased 17 points, or 0.39%, to 4,523. The Nasdaq Composite gained 131 points, or 0.93%, to 14,245.
The ongoing second-quarter earnings season has provided investors with a closer look at the economy from the perspective of corporate America. So far, the results have been positive, with many companies exceeding expectations. On Tuesday, several large banks, including Bank of America, Morgan Stanley, and BNY Mellon, reported their earnings. Interactive Brokers, Charles Schwab, and defense contractor Lockheed Martin also released their results.
According to Quincy Krosby, LPL Financial's chief global strategist, the earnings reports have been surprising to the upside, contributing to the market gains. Additionally, a combination of cooling inflation and the resolution of concerns about the debt ceiling and Treasury bill liquidity has helped boost investor confidence.
Microsoft Corp. saw its shares surge to a record close on Tuesday after setting higher-than-expected prices on its artificial-intelligence-powered software. This contributed over 100 points to the Dow's gain.
Investors will be closely watching corporate results and management forecasts to determine if the market's current levels, which are the highest since April 2022, are justified. The S&P 500 and Nasdaq Composite indices are up 18.6% and 37.1% respectively for the year to date. However, a catalyst, such as the Federal Reserve's upcoming interest rate decision, could prompt a pullback in the market.
The Fed is expected to announce a 25-basis point increase in the fed-funds rate at its next meeting. However, the market is uncertain about what will happen after this hike. Another ongoing concern is the health of U.S. consumers, as June retail sales showed a below-forecast increase. This cautious consumer behavior may be attributed to the Fed's rate hikes and concerns about the future of the economy.
In addition to retail sales data, other economic updates on Tuesday included June industrial production and capacity. Industrial output declined by 0.5% in June, below expectations, while business inventories increased by 0.2% in May. The home builders sentiment index, on the other hand, increased for the seventh consecutive month, supported by the shortage of existing homes for sale. However, high mortgage rates and uncertainty about the Fed's interest rate policy are reasons for caution in the housing market.
Overall, the stock market's recent gains have been driven by positive corporate earnings reports and a favorable inflation outlook. However, future market performance will depend on factors such as the Fed's interest rate decision and consumer spending behavior.
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