Stocks continued to head higher to open the second half of the year.
The Dow Jones Industrial Average was the best performing major U.S. index, climbing 2.3%, its best weekly gain since the first week of June. The S&P 500 gained 1.5% for the second week in a row while NASDAQ rose 1.8% after gaining 2.4% the prior week. Investors are anticipating a strong earnings season, which began Friday when JPMorgan Chase and Citigroup beat earnings and revenue estimates although beleaguered Wells Fargo failed to hit forecasts. Small cap indexes closed narrowly mixed, with the S&P MidCap 400 rising 0.4% on the week while the SmallCap 600 fell by the same percentage.
Asian stocks rebounded strongly, with both Japanese and mainland Chinese stocks jumping by more than 3%. The Nikkei 225 rose 3.7%, its first gain in four weeks, after rising nearly 2% on Friday. The Shanghai composite gained 3.1%, its first increase following seven straight weekly losses. Hong Kong stocks rose 0.7%, their first increase in five weeks. In Europe, the Stoxx Europe 600 rose 0.7%, its second straight weekly gain. In the U.S. Treasury bond market, yield spreads continued to narrow, as yields at the short end rose about three basis points while long-term yields were largely unchanged. The benchmark 10-year note closed at 2.83%, up one bp. Oil prices fell by more than 4%, with benchmark U.S. crude ending Friday at about $70.50 a barrel.
Last week’s thin slate of U.S. economic reports was mostly focused on inflation, which is on the rise, which will likely confirm the Federal Reserve’s inclination to keep raising interest rates. The headline consumer price index for June rose a modest 0.1% compared to the prior month but 2.9% compared to a year earlier, the biggest annual leap in more than six years. The core rate, which excludes food and energy prices, rose 0.2% for the month and 2.3% year-on-year. The producer price index increased 0.3% for the month and 3.4% for the year, the biggest YOY spike since November 2011; the core rate was also up 0.3% for June and 2.8% YOY. Elsewhere, consumer credit outstanding jumped $24.6 billion in May, led by a nearly $10 billion increase in revolving credit, the biggest monthly increase since last November. The report follows recent reports of relatively sluggish consumer spending and consumer confidence, which continued in July, as the University of Michigan’s first reading of consumer sentiment for the month came in at 97.1, down more than a point from the end of June.
Reports/dates/facts/links worth paying attention to over the next week:
1. July 16: Retail sales for June; Empire State manufacturing survey for July.
2. July 17: Industrial production for June; National Association of Home Builders housing market index for July; Federal Reserve Chair Jerome Powell delivers his semiannual monetary policy testimony before the Senate Banking Committee.
3. July 18: Housing starts for June; Powell testifies before the House Financial Services Committee; Fed Beige Book.
4. July 19: Weekly unemployment claims; leading economic indicators for June; Philadelphia Fed business outlook survey for July.
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