Better than forecast retail sales for June registered 0.4% on the headline. Gains were broadly based across categories with retail control gaining 0.7%. This data moves the Street's Q2 GDP tracking estimate closer to 2.5% and provides a very solid ramp for consumer spending into Q3.
Of course, too many positive economic indicators could derail the Fed from cutting interest rates this year, and the market has already fully priced in three 25 basis point cuts in the next 18 months.
Goldman Sachs (GS), JP Morgan (JPM), and Wells Fargo (WFC) announced earnings, with Goldman Sachs beating estimates comfortably at earnings per share of $5.81 versus $4.89 estimate. GS stock was up over 2% on the news. JP Morgan beat estimates as well, though the news was mixed. EPS was reported at $2.82 versus a $2.50 estimate, but soft lending numbers cut into strong consumer banking division results. CEO Jamie Dimon's comments were positive, citing "healthy confidence levels, solid job creation, and rising wages" as bulwarks for the U.S. economy. JPM rose 0.26% as investors parsed the data.
Wells Fargo, which has sought to rebuild its image following a string of scandals, beat estimates by reporting earnings of $1.30 per share versus a $1.15 forecast. Like JP Morgan, however, the good news was tempered by the lending environment, which is clouded by expectations of Fed interest rate cuts. Banks have benefited during a rising interest rate environment, but that window is likely closing. WFC surged in the morning but was down nearly 1% by 10:30 am EDT.
In summary, it's too soon to craft an overall bank earnings narrative. Citigroup (C) beat estimates on top and bottom lines yesterday, but the result was considered disappointing. Time will tell with more banks to report soon, such as Morgan Stanley (MS) on Thursday.
The common thread among all the above data is the expectation of an interest rate cut on July 31. Fed Chair Jerome Powell is scheduled to speak at 1pm today, and he is not expected to deviate from comments to Congress last week. The strong retail sales numbers from this morning may be another, if not the last, nail in the coffin of 50 basis point cut speculation.
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