U.S. equities and stock exchange traded funds climbed Friday, with the S&P 500 hitting intra-day record highs, as weakening economic data diminished bets of further rate hikes this year.
Technology companies in the S&P 500 led markets, rising 0.8%. However, lackluster banks capped broad market gains, with financial companies in the S&P 500 falling 0.8%.
“The bar for earnings is higher this time around, especially after the phenomenal growth we saw in the first quarter. So companies that miss expectations or guide down will be overly punished,” Michael Scanlon, portfolio manager at Manulife Asset Management, told Reuters.
According to Thomson Reuters, analysts project second quarter earnings for the S&P 500 companies to rise 8.1% year-over-year after first quarter earnings posted their best result since 2011. Traders will be closely monitoring quarterly earnings as a gauge to see whether or not the high-flying valuations are justified in light of tepid inflation and mixed economic data.
The Labor Department revealed inflation in the U.S. was flat in June. The U.S. consumer price index, which is closely watched as a critical gauge for the Federal Reserve’s next move, was unchnaged from the prior month.
The slow pace of inflation has become a major focus after Federal Reserve Chair Janet Yellen hinted in a congressional testimony this week that slow price gains have structure causes. The poor consumer price index numbers come as Fed officials are placing policy changes or further rate hikes on the inflation outlook.
Furthermore, retail sales declined in June month-over-month, unexpectedly falling for a second month and signaling consumers are providing only a modest support for the economy.
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