Key points:

  • All three major indexes posted their fifth consecutive weekly gain.
  • Large banks such as JPMorgan Chase and Wells Fargo reported results that exceeded analysts’ expectations.
  • Inflation data boosted market expectations for a potential Fed rate cut.

At the close of trading on Friday, the S&P 500 and Dow Jones Industrial Average reached new all-time highs. The growth was driven by a significant strengthening of the financial sector, following the release of strong quarterly reports from banks. Simultaneously, inflation data reinforced market expectations for a Federal Reserve interest rate cut in November of this year.

Specifically, the Dow Jones Industrial Average rose by 409.74 points, or 0.97%, closing at 42,863.86 points. The S&P 500 also showed positive momentum, gaining 34.98 points (0.61%) to end the session at 5,815.03 points. The Nasdaq Composite added 60.89 points (0.33%), reaching 18,342.94 points.

Bank earnings bolster confidence in economic health

The earnings season for major companies kicked off on a positive note. One of the leaders was JPMorgan Chase, whose shares rose by 4.4%. This growth was due to its third-quarter results, which surpassed analysts’ expectations. Additionally, the bank raised its annual net interest income forecast.

Wells Fargo shares also followed a similar trajectory, increasing by 5.6%, driven by better-than-expected financial results. BlackRock also pleased investors by announcing a record level of assets under management for the third consecutive quarter, with its shares rising by 3.6%.

Evan Brown, portfolio manager and head of multi-asset strategy at UBS Asset Management, expressed optimism about the first phase of the earnings season. According to him, strong results from leading financial companies are a good start and may indicate positive economic prospects overall. “When financial companies succeed, this is what a soft landing looks like. It’s a positive overall sign for the economy and sets a positive tone for earnings reports from other sectors in the coming weeks,” he said.

Inflation data confirm traders’ optimism

Over the past week, major U.S. stock indexes showed steady growth. The S&P 500 gained 1.1%, the Dow Jones Industrial Average increased by 1.2%, and the Nasdaq Composite also rose by 1.1%. This marks the fifth consecutive week of positive performance for all three indexes.

The positive market trend was supported by the release of inflation data. According to a report from the U.S. Department of Labor, the Producer Price Index (PPI) for final demand in September remained unchanged compared to the previous month, which was below economists’ forecasts. The PPI data complemented the Consumer Price Index (CPI) report released the day before, which, while slightly above expectations, overall indicates a slowdown in inflation.

Scott Wren, senior global market strategist at Wells Fargo Investment Institute, noted that the market is optimistic about the economy’s future. “The market is almost certain we are headed for a soft landing and that inflation, even though CPI was a bit higher than expected yesterday, will moderate,” the expert said.

However, preliminary data from the University of Michigan’s Consumer Sentiment Index for October came in below expectations. Nevertheless, this did not significantly impact the overall positive trend.

Traders continue to hold high expectations for a Fed rate cut at its November meeting. According to CME FedWatch data, the probability of such a decision is estimated at around 88%.

During the trading session, there was heightened volatility in the shares of individual companies. For instance, Tesla’s stock price fell by 8.8% following the presentation of its long-awaited robotaxi. Investors were concerned about the lack of detailed information on the timeline for mass production and potential regulatory risks.

At the same time, the financial sector posted strong gains. The S&P 500 Banks Index rose by 4.2%, reaching its highest level since February 2022. Positive momentum in the banking sector contributed to the overall rise of the S&P 500 index.