Closing Market Update

Stocks Set New Intraday Highs Despite Hot PPI Data

July 12, 2024 Joe Mazzola
Before a late-day selling spree, the S&P 500 and Dow Jones Industrial Average hit all-time record highs despite firm PPI growth. Info tech rebounded from Thursday's selling, but sector rotation continued.

Published as of: July 12, 2024, 4:40 p.m. ET 

Audio Close Schwab Market Update

Listen to the latest audio Schwab Market Update. Or listen and subscribe for free to the end-of-day Schwab Market Update podcast in your podcast app of choice.

(Friday market close) Wall Street shook off Friday's unpleasant June reading on wholesale prices, climbing to new intraday record highs as the rally kept broadening beyond a handful of tech-focused mega caps. 

Advancing shares easily outpaced decliners for a second straight session as investors chased so-called "value" stocks that had flown under the radar the last few months. Only a late-session burst of what appeared to be pre-weekend profit-taking kept major indexes from finishing at record levels.

"The Producer Price Index (PPI) numbers are better if you look under the hood," said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research. "Even though the top-line numbers were worse than expected, it didn't reverse yesterday's good CPI report because some underlying components that feed into PCE slowed. We believe we're still on the path to slowing inflation, yet it'll be a bumpy road."

PPI rose 0.2% when analysts had expected a 0.1% gain, which is a bit of a sting following Thursday's encouraging June Consumer Price Index (CPI) report that sent yields tumbling and boosted small caps and other overlooked sectors at the expense of info tech. Core PPI, which extracts volatile food and energy, was even higher at 0.4%, while annual headline PPI climbed 2.6%, the most since March 2023. 

Treasury yields edged slightly higher after the data but then slipped to near the four-month lows that they hit on Thursday. Odds of a Fed rate cut in September remain above 90%, according to the CME FedWatch tool.

Info tech returned to its customary top-three spot on the leader board Friday, but some of this year's less-flashy names weren't far behind. Materials, utilities, real estate, and industrials posted solid gains to close a week led by the first three of those. Consumer discretionary made a last-minute run to grab Friday's checkered flag, helped by automakers and retailers.

This speaks to the broadening rally on Wall Street that led to hefty climbs late this week in the percentage of stocks trading above their respective 50-day moving averages. The small-cap Russell 2000® (RUT) Index, which sagged most of the year's first half, hit its highest point in more than two years on Friday. 

Earnings season unofficially kicked off early Friday when three large U.S. investment banks reported. JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) mostly met or exceeded analysts' expectations but received an unfriendly greeting from investors, possibly reflecting "sell the news" sentiment. 

Here's where the major benchmarks ended:

  • The S&P 500® index (SPX) rose 30.81 points (0.5%) to 5,615.35, up 0.9% for the week; the Dow Jones Industrial Average® ($DJI) rose 247.15 points (0.6%) to 40,000.90, up 1.6% for the week; the Nasdaq Composite® ($COMP) added 115.04 points (0.6%) to 18,398.44, up 0.3% for the week. Both the SPX and $DJI set intraday record highs today.
  • The 10-year Treasury note yield closed basically unchanged just below 4.19%.
  • The Cboe Volatility Index® (VIX) fell slightly to 12.49.

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

Insights & Education page, and you can follow us at @SchwabResearch.

" role="dialog" aria-label="

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

" id="body_disclosure--media_disclosure--127041" >

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

Stocks on the move

The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news:

  • Rivian Automotive (RIVN) added to recent gains, climbing nearly 8% in part due to a price target increase from Mizuho. Rivian said recently it expects to post a gross profit in its fiscal fourth quarter and to hit its yearly production goal. Also, Volkswagen recently said it'll invest up to $5 billion in a joint venture with Rivian.
  • Other automobile makers like Tesla (TSLA), Toyota (TM), General Motors (GM), and Ford (F) enjoyed strong sessions Friday, with the industry benefiting from ideas that falling interest rates might make cars more affordable. Ford advanced 4% and Tesla jumped nearly 3%. Toyota and GM each rose around 2%.
  • Homebuilders Lennar (LEN) and D.R. Horton (DHI) enjoyed their second day of strong gains, also driven by hopes for falling rates. Both climbed more than 2.5%.
  • Lowe's (LOW) and Home Depot (HD) each rose nearly 2% amid homebuilder strength. Both companies' fortunes are tied closely to the housing market, catering to both builders and homeowners making renovations.
  • Shares of semiconductor companies Nvidia (NVDA), Intel (INTC), Advanced Micro Devices (AMD), Micron (MU), and others in the chip industry rebounded from Thursday's sell-off, lifted by general optimism about the economy. The PHLX Semiconductor Index (SOX) rose 1.3%.

Investors chase value, but will lower rates be enough?

Wall Street's sudden improved breadth followed the sharp drop in June CPI seen yesterday. It brought to mind when rate cut hopes rose as inflation fell and smaller stocks began to gain on mega caps late last year. That was a short-lived move because rate cuts vanished from the picture amid stubborn first-quarter inflation. 

The idea then and now is that lower rates can improve consumer and business sentiment, leading to increased spending on all sorts of items from cars to restaurant meals to washing machines to computers. Smaller companies also tend to do better in times of lower rates because they rely more on borrowing than larger ones. 

An example of a stock that turned around this week in hopes of easier financial conditions is Darden Restaurants (DRI), shares of which were down 16% for the year as of earlier this week but rose 4% from there by late Friday. PepsiCo (PEP), Starbucks (SBUX), and Deere (DE) are a few other well-known stocks that executed sharp reversals upward Thursday and Friday.

"Investors are seeing a high probability that the start of a Fed rate-cutting cycle will begin in September, and now the question seems to be whether this recent rotation into 'value' will persist in the coming weeks and months," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "But with stocks at all-time highs, valuations stretched, and the potential for a recession still on the table, are markets too focused on the trajectory of interest rate policy and not paying enough attention to current risk/reward dynamics? Keep in mind that the average year-end target for the S&P 500 from strategists is about 300 points below current levels."

Technically, Thursday's one-day washout for info tech wasn't necessarily the consolidation many analysts had looked for. Earnings from semiconductor giants ASML (ASML) and Taiwan Semiconductor (TSM) next week could be touchpoints for the tech sector, and Peterson thinks upside surprises for those could add new fuel to the AI/chip trade. 

The S&P 500 Equal Weight Index (SPXEW), which weighs all stocks in the index equally rather than by market capitalization, has rallied 3% over the last three days and set the index up for a potential test of the all-time closing high of 6,875 reached March 28. "Although we're overbought on a very near-term basis, if the SPXEW can push above 6,875, it could provide more fuel to the rotation trade," Peterson said. He added that the SPX has a forward price-to-earnings (P/E) ratio of 23, which historically is very high. 

Earnings resume early next week as three more large U.S. investment banking firms report, starting with Goldman Sachs (GS) on Monday and followed by Bank of America (BAC) and Morgan Stanley (MS) on Tuesday. Several major regional banks post earnings in the coming days as well. Goldman Sachs has topped analysts' estimates three quarters in a row, Briefing.com pointed out, but shares are up 24% since the last earnings report, giving the stock a high bar to climb.

JPMorgan Chase opened bank earnings with revenue rising 22% year over year to easily beat the FactSet average consensus. It also beat earnings-per-share (EPS) estimates. Net interest income, or the money made lending minus what's paid to customers, rose just 4%, which analysts had expected to be a relatively soft point. Instead, the quarter got a spark from solid performance in its markets and securities services segment, led by a 21% gain in equities trading. Average loans rose 6% year over year and debit and credit card sales volume rose 7%, both of which signal underlying economic strength.

Wells Fargo shares were hurt by a 9% year-over-year drop in net interest income per its quarterly earnings report this morning. The company said the decline had been expected, and it cited strong performance in investment advisory, trading, and investment banking fees. Commercial loan demand "remained tepid," Wells Fargo said. Citigroup's earnings reflected solid results in its Wall Street trading operations and banking. EPS easily beat the average analyst estimate, though revenue came in just a sliver above the average projection.

The market's current expectations for rate cuts later this year could support the type of business activity, such as mergers and acquisitions and initial public offerings, that drives banking revenue. Banks are joined by other heavy hitters in the earnings department next week, including Johnson & Johnson (JNJ), United Airlines (UAL), UnitedHealth (UNH), and American Express (AXP). 

Preliminary July Consumer Sentiment from the University of Michigan today showed consumers are less than blissful with a headline of 66.0, down from 68.2 at the end of June. Briefing.com consensus was 67.5. Current economic expectations fell from last month but so did one-year inflation expectations. Weaker consumer sentiment might be a sign of labor conditions worsening and is something the Fed is closely watching as it considers interest rate policy.

There's virtually no chance of a July rate cut, according to the CME FedWatch Tool, but investors place odds at 94% that rates will fall 25 basis points by the September Federal Open Market Committee (FOMC) meeting. The market expects two or three rate cuts by the end of the year, divided about equally between those two possibilities.