US stocks end volatile week with a strong rally on upbeat earnings

Economic data eased fears of a larger-than-expected interest rate rise by the Federal Reserve

The New York Stock Exchange on Wall Street in New York City. AFP

US stocks closed sharply higher on Friday, ending several days of sell-offs with a rebound fuelled by upbeat earnings, strong economic data and easing fears of a larger-than-expected interest rate rise by the Federal Reserve.

All three major US stock indexes posted solid gains, with financials leading the charge after Citigroup's earnings beat estimates. This reversed Thursday's sell-off driven by downbeat guidance from rivals JP Morgan and Morgan Stanley.

The S&P 500 and the Dow both snapped five-day losing streaks, and all three indexes ended below last Friday's close.

“We're still below the downward sloping trend line,” said Sam Stovall, chief investment strategist of CFRA Research in New York. “One day does not a new trend make.”

Consumer prices in June showed the highest annual growth rate since 1981, raising chances that the Fed could raise its fed funds target rate by 100 basis points, greater than the 75-basis point rise anticipated.

“[Investors] would be unnerved by a 100-basis point rate hike, as it would imply that the Fed does not know what it is doing and is being controlled by the data,” Mr Stovall said.

Those fears were calmed by remarks from Fed officials on Thursday and Friday, which indicated an interest-rate increase of 75 basis points is likely.

Economic data released on Friday surprised to the upside, with stronger-than-expected retail sales, an improvement in consumer sentiment, lower inflation expectations and cooling import prices.

“Economic indicators are not consistent right now,” said Tim Ghriskey, senior portfolio strategist Ingalls & Snyder in New York. “They are positive and negative, which shows we're in a period of transition.

The Dow Jones Industrial Average rose 658.09 points, or 2.15 per cent, to 31,288.26, while the S&P 500 gained 72.78 points, or 1.92 per cent, to close at 3,863.16 and the Nasdaq Composite added 201.24 points, or 1.79 per cent, at 11,452.42.

All 11 major sectors of the S&P 500 ended the session higher, with financial stocks easily making the largest percentage gain of 3.5 per cent.

Second-quarter earnings season is well under way, with 35 of the companies in the S&P 500 having reported. Of those, 80 per cent have beaten Wall Street expectations, according to Refinitiv.

Analysts now expect aggregate year-on-year S&P 500 second-quarter profit growth of 5.6 per cent, down from the 6.8 per cent estimate at the beginning of the quarter.

Citigroup bucked the trend among big bank earnings reports as its quarterly profit beat expectations, sending the stock up 13.2 per cent.

Wells Fargo said its quarterly profit nearly halved because of increased loan loss provisions and a weak mortgage business. Still, its shares gained 6.2 per cent.

The S&P Banking index jumped 5.8 per cent, its biggest one-day percentage surge since January 2020.

BlackRock rose 2 per cent even after the world's largest asset manager posted a steeper-than-expected profit drop.

Market participants are looking to next week's full ledger of scheduled earnings releases, from Goldman Sachs, Bank of America, International Business, Netflix, Tesla, Twitter and assorted industrials.

The S&P 500 posted one new 52-week high and 31 new lows; the Nasdaq Composite recorded 37 new highs and 126 new lows.

Volume on US exchanges was 10.26 billion shares, compared with the 12.31 billion average over the last 20 trading days.