US stocks hit record highs on boost from bank earnings

The gains were capped by an 8.8% decline in Tesla shares as the Robotaxi failed to impress investors

Traders work on the floor at the New York Stock Exchange. Reuters

Wall Street began the earnings season on Friday with stocks hitting all-time highs, lifted by US banks posting robust results.

US stocks advanced, with the Dow and S&P 500 closing at record highs, as bank shares rose 4.21 per cent, its biggest daily percentage gain since May 2023, at the start of the quarterly earnings season.

JP Morgan Chase, the biggest US lender, rose 4.44 per cent after churning out a surprise increase in net interest income, while Wells Fargo shot up 5.61 per cent.

“Citi, Morgan Stanley, Goldman and Bank of America will report next week and provide some insights regarding the overall health of the economy. The US bank stocks have performed well this year, they are the second-best performers among the S & P500 sub-sectors this year after technology as the Fed rate cuts got delayed to the third quarter while the economic growth remained resilient,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“Sure, the saving rates and the delinquencies rates rose, but that didn’t have a material impact so far … And if all goes well, the lower net interest income due to the upcoming Fed cuts will be compensated by improved economic activity and a faster loan and deposit growth, while a potential delay in Fed cut rates should keep the net interest income intact. As such, the bank investors have reason to believe that their bank stocks could extend their gains in both scenarios.”

The S&P 500 topped 5,800, notching its 45th record in 2024. The index rose 0.6 per cent, extending gains into a fifth straight week – its longest winning run since May.

The Nasdaq 100 added 0.1 per cent, the Dow Jones Industrial Average gained 1 per cent and the Russell 2000 climbed 2.1 per cent.

However, gains were capped by an 8.8 per cent decline in Tesla shares as the electric vehicle maker promised much at its Robotaxi event with few practical details.

Uber Technologies and Lyft jumped more than 9.5 per cent.

The US producer price index was unchanged in September, slightly below the forecast of economists polled by Reuters for a gain of 0.1 per cent. In the 12 months through September, the PPI increased 1.8 per cent versus the 1.6 per cent estimate.

On Thursday, the consumer price index turned out to be slightly higher than expected as goods costs increased.

MSCI's gauge of stocks across the world rose 0.54 per cent to 852.75 and was on track for its fourth weekly gain in five weeks.

In Europe, the Stoxx 600 index closed up 0.55 per cent as investors shifted their focus to China's fiscal stimulus, corporate earnings seasons and the European Central Bank's expected rate cut next week.

“China will unveil more details about its fiscal stimulus plans on Saturday and their announcement should live up to high market expectations to prevent investors’ enthusiasm from entirely fading. The expectation is a 2 trillion yuan package, 10 times the number pronounced by authorities earlier this week,” Ms Ozkardeskaya said.

Richard Hunter, head of markets at interactive investor, said that investors are now pinning their hopes that the briefing scheduled for Saturday will unveil a detailed set of fiscal measures to complement the initiatives already announced.

However, he added that based on past experience, sentiment remains skittish and slightly cynical.

US Treasury yields were mostly lower after inflation and consumer confidence reports solidified expectations for the path of Federal Reserve rate cuts.

The 10-year yield is up about 11 basis points for the week, poised for its fourth weekly advance in a row. The two-year yield is nearly 7 basis points on the week, on track for a second weekly climb.

“After pricing in around 75-basis point cuts by year-end, the market is now expecting around 45 basis points worth of rate cuts. That points to slightly less than two 25-basis point cuts,” said Fawad Razaqzada, market analyst at City Index and Forex.com.

“While Atlanta Federal Reserve Bank president Raphael Bostic – a well-known hawk – is open to the idea of a pause in the Fed’s easing, this is highly unlikely because of the fact the Federal Open Market Committee has just delivered a large rate cut and would look really silly to apply the brakes this soon. Indeed, some of the other Fed officials that have spoken yesterday have all shrugged off the hotter CPI print.”

In currency markets, the dollar index, which measures the greenback against a basket of currencies, edged up 0.05 per cent to 102.94, with the euro down 0.03 per cent at $1.0932.

The greenback is up 0.44 per cent on the week, on track for a second weekly gain in a row after four weeks of declines.