Stocks Rise as US Banks Report Solid Earnings and Israel Prepares for Possible Invasion of Gaza
Stocks saw gains as several major US banks released strong earnings reports, while treasuries and oil prices also increased due to concerns over a possible ground invasion of Gaza by Israel. The S&P 500 was on track for a consecutive weekly gain, and the KBW Bank Index rose by 1.3%. JPMorgan Chase & Co. saw a 5% jump in its stock price after reporting record net interest income for the quarter and an optimistic forecast. Wells Fargo & Co. also exceeded analysts’ expectations for net interest income and raised its guidance, resulting in a 4% increase in stock prices. Similarly, Citigroup Inc. witnessed a 3.5% climb as its rates and currencies traders achieved their best third quarter in eight years.
Investors are hopeful for modest growth in the upcoming third-quarter earnings releases, which could reverse three consecutive year-over-year declines in quarterly earnings. Bryan Reilly, a portfolio manager and senior investment analyst at CIBC Private Wealth US, stated, “This would arrest a string of three consecutive year-over-year declines in quarterly earnings – a traditional earnings recession – and a return to growth that the market desperately needs given its appreciation this year.”
The odds of another central bank hike were reduced based on swap contracts, after Federal Reserve Bank of Philadelphia President Patrick Harker confirmed that disinflation is underway and reiterated his preference for holding interest rates steady unless there is a significant change in data.
Meanwhile, treasury 30-year yields dropped by nine basis points to 4.76%, partially reversing the surge seen on Thursday, which was driven by disappointing inflation figures and a weak bond auction. Oil prices hovered around $86 a barrel, with concerns arising that Israel’s potential ground invasion of Gaza could escalate into a regional conflict involving Iran. Bloomberg Economics estimated that in such a scenario, oil prices could rise to $150 a barrel, leading to a global growth drop to 1.7% and a $1 trillion decrease in world output.
Matt Maley, chief market strategist at Miller Tabak + Co., expressed surprise at the level of complacency in the stock market given the potential risks associated with the situation in Israel. He stated, “The situation in Israel is a horrible one, and if it spreads into a regional conflict, the human costs will rise exponentially, and the financial costs around the globe will begin to rise very, very quickly as well.”
In other corporate news, Microsoft Corp. successfully completed its $69 billion acquisition of Activision Blizzard Inc. after facing scrutiny from global regulators for nearly two years. UnitedHealth Group Inc. raised the lower end of its annual profit forecast due to lower-than-expected medical costs, surpassing quarterly earnings expectations. Boeing Co. and its top supplier saw a decline in share prices following reports of expanded inspections of production flaws in 737 Max aircraft, potentially causing further delivery delays. BlackRock Inc. experienced net outflows of $13 billion from long-term investment funds, marking the first outflows since the onset of the pandemic in 2020. PNC Financial Services Group Inc. began reducing headcount by 4% in response to the impact of higher interest rates on profitability. Dollar General Corp. CEO Jeff Owen stepped down after poor stock performance and increasing concerns about workplace safety.
Overall, the stock market showed positive momentum in response to strong bank earnings, while geopolitical tensions in the Middle East raised concerns about potential financial and economic impacts worldwide.
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