Big Banks Boost the Dow and S&P 500 to Record Highs

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Sinéad Carew, Lisa Mattackal and Pranav Kashyap of Reuters report S&P 500, Dow hit records, boosted by bank earnings surprise:

The S&P 500 and the Dow scored record closing highs on Friday, with the big boosts from financial stocks after banks reported strong quarterly results while the latest inflation data fueled expectations for a U.S. Federal Reserve rate cut in November.

Major financial companies kicked off earnings season with JPMorgan Chase finishing the session up 4.4% after the lender reported higher-than-expected third-quarter profit and raised its annual interest income forecast.

Shares in Wells Fargo rallied 5.6% after its profit also beat analysts' expectations. BlackRock stock gained 3.6% after the asset manager reported that its assets under management had hit a record high for the third straight quarter.

Other stocks in the industry rose broadly, making the S&P 500 Financials index the biggest index points boost for the benchmark.

"We'd some good earnings reports from some leading financial companies. That's a good start to earnings season," said Evan Brown, Portfolio Manager and Head of Multi-Asset Strategy, UBS Asset Management, adding that it bodes well for the economy.

"When financials do well, this is what a soft landing looks like. It's a positive overall sign for the economy and sets a positive tone for earnings releases in other industries in the next few weeks."

For the day, the Dow Jones Industrial Average rose 409.74 points, or 0.97%, to 42,863.86, the S&P 500 gained 34.98 points, or 0.61%, to 5,815.03 and the Nasdaq Composite gained 60.89 points, or 0.33%, to 18,342.94.

For the week, the S&P 500 added 1.1% while the Dow climbed 1.2% and the Nasdaq added 1.1% with all three notching their fifth weekly gain in a row.

Earlier in the day, data from the U.S. Department of Labor showed the Producer Price Index (PPI) for final demand was unchanged on a monthly basis in September, compared to the 0.1% rise expected by economists polled by Reuters.

Friday's PPI data follows Thursday's Consumer Price Index (CPI) reading, which was slightly higher than forecast, although weekly jobless claims rose more than expected.

"The market's pretty convinced that we're going to have a soft landing and that inflation, even with CPI being a little bit higher than expected yesterday, is going to be moderate," said Scott Wren, senior global market strategist at Wells Fargo Investment Institute in St. Louis, Missouri.

"If you look at today's PPI data, the core and final demand were both a little lower than expected ... Inflation's certainly been moderating and that's a positive that the market paid attention to."

Meanwhile, a preliminary reading of the University of Michigan's October consumer sentiment index stood at 68.9, compared with analysts' estimate of 70.8.

With the week's data under their belts, traders kept bets steady for a roughly 88% probability the Fed would cut rates by 25 basis points at its November meeting, and a 12% chance it will leave rates unchanged, according to CME's FedWatch tool.

During the session the consumer discretionary index was under pressure from an 8.8% slump in shares of Tesla after the EV maker unveiled its long awaited robotaxi, but did not provide details on how fast it could ramp up production or deal with potential regulatory hurdles.

With S&P 500 financial services stocks adding 1.95%, the S&P 500 Banks index added 4.2%. During the session it hit its highest level since February 2022. The KBW regional bank index closed up 3.4%.

Advancing issues outnumbered decliners by a 3.96-to-1 ratio on the NYSE where there were 455 new highs and 44 new lows.

On the Nasdaq, 3,142 stocks rose and 1,088 fell as advancing issues outnumbered decliners by a 2.89-to-1 ratio. The S&P 500 posted 69 new 52-week highs and one new low while the Nasdaq Composite recorded 139 new highs and 84 new lows.

On U.S. exchanges 10.27 billion shares changed hands compared with the 12.06 billion moving average for the last 20 sessions.

Samantha Subin and Brian Evans of CNBC also report the Dow jumps 400 points to a record on Friday, S&P 500 closes above 5,800 for the first time:

The S&P 500 and Dow Jones Industrial Average powered to new highs on Friday and capped off a winning week as banking behemoths ushered in a promising start to the third-quarter earnings season.

The broad index gained 0.61% to end at 5,815.03, while the Dow rallied 409.74 points, or 0.97%, to finish at 42,863.86. Both averages hit fresh all-time highs and closed at records. The Nasdaq Composite added 0.33% to finish at 18,342.94 and less than 2% below its all-time high.

“What we’re seeing — and I think you’re seeing it hit pretty hard today, in a good way — is a broadening of the market,” said Craig Sterling, head of U.S. equity research at Amundi US.

The major averages also registered a fifth straight week of gains. The S&P 500 and Nasdaq jumped 1.1% each, while the Dow toted a 1.2% gain.

A strong start to the third-quarter earnings season provided a lift to stocks. JPMorgan Chase rose 4.4% after topping profit and revenue expectations, while Wells Fargo popped 5.6% on stronger-than-expected profits. Investors overlooked disappointing revenue and an 11% decline in net interest income.

“Net interest income used to be the bellwether of whether [a] bank is doing well or not,” said Kim Forrest, chief investment officer at Bokeh Capital Partners. “Investors have comprehended that they’ll make money in good times and bad.”

Wall Street tends to view the banking sector as a barometer for the health of economy, setting the tone for the remainder of the earnings season. However, Forrest notes they lack the visibility into forward guidance that often affects the postearnings stock moves.

Stocks also benefited from data that alleviated fears that inflation was not cooling off quickly enough. That included a cooler-than-expected September producer price index reading after the consumer price index increased slightly more than expected. The findings signaled that the Federal Reserve may in fact attain a soft landing scenario and reach its 2% goal, which Goldman Sachs economists think upcoming September inflation data may already show.

“Overall, these numbers are getting less impactful as inflation moderates,” said David Russell, global head of market strategy at TradeStation. “The Fed could still be on track for 25 basis points at the next two meetings.”

Fed funds futures trading suggests a nearly 90% likelihood that the Federal Reserve will dial back interest rates by a quarter point in November, according to the CME FedWatch Tool. Central bank policymakers will keep a close eye on additional data, which will shape their course on rates.

Elsewhere, Tesla shares tanked 8.8% on the back of an underwhelming robotaxi event.

Hugh Son and Kristian Burt of CNBC also report Jamie Dimon says geopolitical risks are surging: 

JPMorgan Chase CEO Jamie Dimon sees risks climbing around the world amid widening conflicts in the Middle East and with Russia’s invasion of Ukraine showing no signs of abating.

“We have been closely monitoring the geopolitical situation for some time, and recent events show that conditions are treacherous and getting worse,” Dimon said Friday in the bank’s third-quarter earnings release.

“There is significant human suffering, and the outcome of these situations could have far-reaching effects on both short-term economic outcomes and more importantly on the course of history,” he said.

The international order in place since the end of World War II is unraveling in light of conflicts in the Middle East and Ukraine, rising U.S.-China tensions, and the risk of “nuclear blackmail” from Iran, North Korea and Russia, Dimon said last month during a fireside chat held at Georgetown University.

“It’s ratcheting up, folks, and it takes really strong American leadership and Western world leaders to do something about that,” Dimon said at Georgetown. “That’s my No. 1 concern, and it dwarves any I’ve had since I’ve been working.”

The ongoing conflict between Israel and Hamas recently hit the one-year mark since Hamas’ attack on Oct. 7, 2023, sparked war, and there have been few signs of it slowing down. Tens of thousands of people have been killed as the conflict has broadened into fighting on multiple fronts, including with Hezbollah and Iran.

At least 22 people were killed and more than 100 injured in Beirut from Israeli airstrikes on Thursday. Iran launched more than 180 missiles against Israel on Oct. 1, and worries have risen that an Israeli retaliation could target Iranian oil facilities.

Meanwhile, the Russian government approved a draft budget last week that boosted defense spending by 25% from 2024 levels, a sign that Russia is determined to continue its invasion of Ukraine, analysts say.

Dimon also said Friday that he remained wary about the future of the economy, despite signs that the Federal Reserve has engineered a soft landing.

“While inflation is slowing and the U.S. economy remains resilient, several critical issues remain, including large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world,” Dimon said. “While we hope for the best, these events and the prevailing uncertainty demonstrate why we must be prepared for any environment.” 

It's Friday, long Thanksgiving weekend here in Canada, most people are off till Tuesday.

Today was all about banks leading the charge as earnings came in stronger than expected.

The one bank everyone owns and watches closely is JPMorgan Chase:

As shown above, since dipping below its exponential 200-week moving average last October, shares of this bank stalwart have never looked back and powered higher.

In fact, you'd be hard-pressed to find a more bullish weekly chart than this, every time it dipped to its 20-week exponential moving average, buyers came in and shares surged higher (weekly MACD is also positive).

JPMorgan Chase shares are inching closer to a new 52-week high and unless the market sells off going into year-end, I don't see any reason why it won't get there with some volatility, of course:

I'm showing you shares of JPMorgan because it's by far the most important bank but truth is all banks and financials in general are doing very well:

The top holding of the Financial Select Sector SPDR Fund (XLF) shown above is Berkshire (13.4%) followed by JPMorgan Chase (9.5%) followed by well-known financial companies:

What's impressive is that banks and other financials are doing well as long bond yields back up:

The reason? The yield curve is steepening as traders anticipate more Fed rate cuts so the short end of the curve is rallying strongly.

And remember, banks borrow short and lend long, so when the yield curve steepens, it's positive for their net interest income.

But how long is this going to last and are we really headed for a soft landing or is the market getting overly excited and we have yet to see the hard landing?

I've consistently stated that it takes time for all those interest rate hikes to work their way into the economy and this time isn't different, a recession is coming

Still, there's no question stocks are headed for another strong year and capping off a historic run:

The stock market which is a leading indicator sure isn't pointing to a recession any time soon.

There are some who even think we are basing and the US economy is about to launch into another growth spurt:

I have my doubts but can't discount this possibility especially if the economy keeps muddling through.

I need to see employment data over the next three to six months to conclude we have indeed avoided a hard landing.

Alright, let me wrap it up with the top performing large-cap stocks this week:

And here's my stock of the week (do your due diligence):

Enjoy your weekend and wish all Canadians a Happy Thanksgiving!

Below, Tom Lee, Fundstrat Global Advisors managing partner and head of research, joins CNBC's 'Closing Bell' to discuss why he's cautious about the markets right now, his outlook on the economy, and more.

Next, CNBC’s Mike Santoli, State Street’s Michael Arone and KBW’s David Konrad, joins 'Power Lunch' to discuss the economy, banks and earnings.

Lastly, Nassim Taleb, Black Swan author and Universa Investments distinguished scientific advisor, talks about the fragility of markets, how to hedge against geopolitical risks and artificial intelligence. He's on "Bloomberg Markets." Take the time to listen to his insights.

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