Opening Market Update

Stocks Up After Trump Survives Shooting

July 15, 2024 Joe Mazzola
Despite the weekend's tragic events, stocks found their footing early Monday possibly in a relief rally. Breadth improved last week, and the Fed's Powell is speaking later today.

Published as of: July 15, 2024, 9:17 a.m. ET

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(Monday market open) Two days after an assassination attempt on former President Donald Trump, stocks climbed early Monday and looked ready to build on last week's record-setting rally.

Wall Street has plenty on its plate besides politics. But with less than four months until the election, this weekend's tragic events put the campaign front and center and remind market participants that we're heading into what could be a volatile period as voting nears.

"The assassination attempt will reverberate through the entire presidential campaign," said Michael Townsend, managing director, legislative and regulatory affairs at Schwab. "Saturday’s tragedy at former President Trump’s rally makes an already tense campaign even more so, sparking concerns about more violence and increasing voter anxiety. Trump and Biden will be under pressure to tamp down the rhetoric and tone of the campaign."

The Republican convention this week appears ready to begin as planned despite the shooting, providing a political undercurrent to a week already filled to the brim with quarterly results from Goldman Sachs (GS), Bank of America (BAC), Johnson & Johnson (JNJ), Taiwan Semiconductor (TSM), United Airlines (UAL), UnitedHealth (UNH), and American Express (AXP), among about 40 S&P 500 companies reporting. Goldman Sachs got things rolling this morning with better-than-expected earnings but shares of the big bank fell slightly.

The first full week of earnings season follows last week's dramatic drop in Treasury yields that triggered a market rotation into value names from big tech. This broadened market breadth, but the question is whether it's sustainable.

"Investors are seeing a high probability that 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?" he added. "Keep in mind that the average year-end target for the S&P 500 from strategists is about 300 points below current levels."

The Federal Reserve comes into sharp focus at 12:30 p.m. ET today when Fed Chairman Jerome Powell participates in a discussion at the Economic Club of Washington, D.C. Today also includes 3- and 6-month Treasury note auctions.

Futures based on the S&P 500® index (SPX) were up 0.4% shortly before the close of overnight trading, and the Nasdaq-100® (NDX) climbed 0.4%. Futures based on the Dow Jones Industrial Average® ($DJI) rose 0.5%. Volatility barely moved despite the weekend's dramatic events.

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.  

Morning rush

  • The 10-year U.S. Treasury yield (TNX) rose four basis points to 4.23%.
  • The U.S. Dollar Index ($DXY) was steady at 104.18.
  • The Cboe Volatility Index® (VIX) rose to 12.93.
  • WTI Crude Oil (/CL) was flat at $82.27 per barrel.
  • Bitcoin (BTC) jumped 4.5% to $62,656.

What to watch

Week ahead: The data calendar gets a bit lighter this week, bookended by June retail sales Tuesday morning and June leading indicators on Thursday (Monday and Friday bring no key data). The retail sales numbers likely deserve a closer look than usual judging from recent company earnings reports and consumer confidence data pointing toward cautious consumer behavior. Weaker spending can reflect softness in the jobs market as well as exhaustion with inflation.

For retail sales, due at 8:30 a.m. CT Tuesday, analysts expect a flat reading following May's 0.1% increase, according to Trading Economics. With auto sales not included, analysts expect retail sales to rise 0.1% in June, up from –0.1% in May. One factor keeping June retail sales down might be falling gas prices that month, though gas prices did rise in late June and early July on strong U.S. demand and geopolitical worries.

Last week's data wrapped up on a gloomy note with Friday's preliminary July U.S. consumer sentiment from the University of Michigan. Headline sentiment was 66.0, down from 68.2 at the end of June and 71.5 a year ago. Briefing.com consensus was 67.5. Current economic expectations fell from last month but so did one-year inflation expectations. Weaker consumer sentiment could reflect diminishing labor conditions, something the Fed is monitoring closely as it considers interest rate policy.

Data tale: This morning saw the July Fed Empire State Manufacturing Survey come in at –6.6, just under the average –6.0 estimate from analysts. A reading below zero denotes contraction. That's the only key data domestically today. Over the weekend, China reported second-quarter gross domestic product growth of 4.7% year over year, down from 5.3% in the first quarter and below the average estimate of 5.1%. This weakness might be a drag on crude oil, as other data showed Chinese imports of crude slowing.

Stocks in spotlight

Goldman results: Solid fixed income trading and a 21% jump in investment banking fees driven by higher debt underwriting helped Goldman Sachs post earnings per share (EPS) that beat the average Wall Street estimate by $0.27. Revenues rose 16.8% year over year to $12.73 billion, above the $12.35 billion consensus from FactSet. The increase in debt underwriting could be read as a sign of overall economic strength, as it reflects companies seeking help from banks to raise capital.

Earnings corner: Two more large U.S. investment banking firms report tomorrow as Bank of America and Morgan Stanley (MS) open their books. Several major regional banks also post earnings this week. Bank earnings can often give investors a real sense of the current economic climate, especially when it comes to loan demand from consumers and businesses. What the major bank CEOs say about their views on business conditions also can be influential.

Goldman Sachs CEO David Solomon didn't discuss the economy in the company's press release, but the company's earnings call starts at 9:30 a.m. ET.

The batting order (aside from banks) starts with UnitedHealth early tomorrow after the health insurance giant exceeded Wall Street's revenue expectations last time out. One element to watch in UnitedHealth's report (and other medical insurers' earnings) is the medical cost ratio, or the amount of every premium dollar going toward medical costs. A lower number indicates better profitability. The figure was 84.3% for UNH in its prior quarter.

Stocks on the move:

  • Alphabet (GOOGL) shares were flat after The Wall Street Journal reported that the company is in talks to buy cloud-security firm Wiz for $23 billion. If the deal comes to fruition, it would be the largest in Alphabet's history.
  • Apple (AAPL) rose 2% in premarket trading following an upgrade from Loop Capital to Buy from Hold with a $300 price target. The firm had positive comments on AAPL's AI initiatives.
  • Cleveland-Cliffs (CLF) fell more than 2% ahead of the open after saying it plans to buy Canadian steelmaker Stelco Holdings for about $2.5 billion. The price is an 86% premium from where Stelco stock closed Friday, Barron's noted, perhaps explaining investors' initial response. Cleveland-Cliffs had been trying to take over United States Steel (X). Falling steel prices this year have spurred consolidation pressure.

Friday in review: 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. 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.

Equal footing: 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 sessions 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.

Below the surface: Wall Street got excited about rate cuts last week and rallied to record highs, but the situation is far more complex and even could be affected by political developments overseas. For more on how all the puzzle pieces might fit together from Schwab experts, read the latest Schwab Market Perspective.

Eye on the Fed

Early today, futures traders build in 7% chances that the benchmark funds rate will fall 25 basis points at the Federal Open Market Committee's (FOMC) July 30–31 meeting, based on the CME FedWatch Tool. Chances of a rate cut by September are 93%.

Thinking cap

Ideas to mull as you trade or invest

GOP convention ahead: Even before the tragedy this weekend, politics loomed over the market heading into this week's Republican convention. "Historically, markets don’t care much about the election itself," Schwab's Townsend said. "Markets care about the policies that might emerge as the result of the election—that’s why the Congressional elections can be more important to the markets than the presidential race, because ultimately it’s Congress that has to pass laws." Some of the issues looming in 2025 could be another debt ceiling fight and a huge debate over taxes. That's why the markets will be interested in the outcome this November and what the new configuration of Washington will be in 2025.

Rotation equation: Last week saw a big rotation out of tech and into small caps and other parts of the market, so the question is whether that continues. The percentage of S&P 500 stocks trading above their respective 50-day moving averages rose to 70% from 41% in just a few sessions as the rally broadened. Advancing shares led declining ones by a 6-1 margin on the New York Stock Exchange (NYSE) last week, emphasizing the churn below the surface. However, the top 10 S&P 500 stocks by market capitalization represent 40% of the index, so can the other 490 stocks move up enough to counter a potential pullback in the top 10? Earnings season could be an important determining factor. So far, companies aren't being rewarded for beating expectations, as seen with Goldman Sachs today. Shares of companies about to report have been jittery, perhaps because the bar is so high.

Teeter-totter: Just as expectations for a possible Fed rate cut in September rise above 90%, chances of a Bank of Japan (BoJ) rate hike that month climbed to nearly 80% late last week. The battered Japanese yen gained slightly versus the dollar recently, strengthening from its weakest levels since 1986. "Inflation and growth may be more durable in Japan than the U.S. in the near-term," said Jeffrey Kleintop, chief global investment strategist at Schwab. "Japan’s Q2 GDP is expected by economists to be 2.2% whereas the latest GDPNow reading from the Atlanta Fed for the U.S. economy in Q2 is 2%." Japan is one of the largest U.S. trading partners, so a rising yen and an improving Japanese economy might help U.S. companies selling products there.

Calendar

July 16: June retail sales, June import and export prices, and expected earnings from Morgan Stanley (MS), UnitedHealth (UNH), PNC (PNC), and J.B. Hunt (JBHT).

July 17: June housing starts and building permits, June capacity utilization and industrial production, and expected earnings from First Horizon (FHN), Johnson & Johnson (JNJ), Northern Trust (NTRS), U.S. Bancorp (USB), ASML (ASML), Alcoa (AA), and United Airlines (UAL).

July 18: June leading indicators, and expected earnings from Abbott (ABT), D.R. Horton (DHI), Domino's Pizza (DPZ), Marsh & McLennan (MMC), Taiwan Semiconductor (TSM), and Netflix (NFLX).

July 19: Expected earnings from American Express (AXP), Halliburton (HAL), Regions Financial (RF), and Travelers (TRV).

July 22: Expected earnings from Verizon (VZ).