Dow Jumps 400 Points After Strong Retail Sales, Mixed Bank Earnings

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Topline

Stocks surged higher on Friday—attempting to recoup some of their losses from this week—as investors assessed the latest batch of corporate earnings from major banks and markets got a boost from stronger-than-expected retail sales.

Key Facts

Markets rebounded: The Dow Jones Industrial Average jumped 1.9%, around 600 points, while the S&P 500 gained 1.6% and the tech-heavy Nasdaq Composite 1.2%.

Investor sentiment got a boost from Commerce Department data showing that retail sales jumped 1% in June, as consumers spent more on a wide range of goods—everything from food to gas—despite inflation recently hitting a new four-decade high.

Major banks continued to report second-quarter earnings: Shares of Wells Fargo fell roughly 1% after the bank set aside money for bad loans and said profits declined by nearly half since a year ago.

Shares of Citigroup, meanwhile, rose 3% after the bank reported strong revenue and profits that exceeded analyst expectations, in large part thanks to rising interest rates and solid trading revenues.

The results follow “underwhelming” earnings results from the likes of Morgan Stanley and JPMorgan Chase a day earlier, with both firms seeing large declines in profits amid a “volatile market environment.”

Despite Friday’s gains, markets continue to be roiled by recession fears, with the latest red-hot inflation data (consumer prices rose 9.1% in June compared to a year ago) increasing the likelihood of bigger rate hikes from the Federal Reserve.

Crucial Quote:

Given the strong retail sales report, “the U.S. may actually post positive growth figures for Q2 and avoid two consecutive quarters of negative growth,” predicts Jeffrey Roach, chief economist for LPL Financial. “The Fed could try to use this data to support a larger-than-expected hike later this month,” he says, adding that if “the consumer is stable enough, the Fed could indeed implement a large hike without breaking the economy.”

What To Watch For:

Stocks are attempting to snap a five-day losing streak, coming off of a mixed session on Thursday. The S&P 500 is down roughly 21% so far in 2022.

Tangent:

China’s economic growth took a major hit following months of strict Covid lockdowns in several major cities. The country’s second-quarter GDP grew by just 0.4% compared to a year ago—a sharp decline from the 4.8% growth rate in the first quarter of 2022, according to official data published on Friday.

Further Reading:

Dow Loses 100 Points After ‘Underwhelming’ Bank Earnings As Investors Fear Bigger Fed Rate Hikes (Forbes)

Dow Falls 200 Points After ‘Ugly’ Inflation Report Adds To Recession Fears (Forbes)

Inflation Spiked 9.1% In June—Hitting New 40-Year High As Price Surge Fuels Recession Fears (Forbes)

Wall Street Firms Slash S&P 500 Price Targets As ‘Concerned’ Analysts Warn Of Earnings Slowdown (Forbes)