The Dow Jones Industrial Average soared to unprecedented heights on Tuesday, marking its best day in over a year. This robust performance reflects a broader market optimism driven by expectations of forthcoming interest rate cuts. While technology stocks saw modest gains, the rally was powered by a significant rotation into small-cap and cyclical stocks, with
The Dow Jones Industrial Average soared to unprecedented heights on Tuesday, marking its best day in over a year. This robust performance reflects a broader market optimism driven by expectations of forthcoming interest rate cuts. While technology stocks saw modest gains, the rally was powered by a significant rotation into small-cap and cyclical stocks, with the Russell 2000 jumping significantly. This shift follows recent data indicating the lowest inflation in three years, fuelling hopes that the Federal Reserve might soon ease monetary policy. The day's mixed performance in global markets underscores a complex economic landscape, yet investor sentiment remains lifted by the prospect of a favourable monetary environment.
Key Takeaways:
Dow Surges to Record Highs: The Dow Jones Industrial Average soared by 742.76 points, or 1.85%, to close at a record 40,954.48. This marks the Dow's best day since June 2023 and an all-time high for the 30-stock index.
Russell 2000 Outperforms: The small-cap-focused Russell 2000 index jumped over 3%, marking its fifth consecutive day of gains and highlighting the shift from megacap technology stocks to smaller, cyclical stocks. This surge is fuelled by expectations of rate cuts, which are seen as beneficial for small caps that rely more on borrowing.
S&P 500 and Nasdaq Composite Gain: The S&P 500 added 0.64%, closing at 5,667.20, supported by broad market gains. Meanwhile, the Nasdaq Composite saw a modest increase of 0.2%, ending the day at 18,509.34, as technology stocks largely sat out of Tuesday's rally.
Financial Stocks Rise on Earnings Beats: Financial stocks gained momentum as Bank of America and Morgan Stanley reported earnings that exceeded analyst expectations. Bank of America jumped more than 5%, while Morgan Stanley added nearly 1%. These results underscore the resilience and profitability of major financial institutions amid a shifting economic landscape.
Retail Sales Support Market Sentiment: US retail sales data for June were unchanged, defying expectations for a decline and reinforcing confidence in the economy. Excluding autos, sales rose 0.4%, surpassing the 0.1% forecast. This data suggests that consumer spending remains robust, contributing to the positive market outlook.
Broad Market Participation: On the NYSE, 77% of stocks advanced, with advancers outnumbering decliners by 2,197 to 571. Advancing volume accounted for nearly 82% of all shares traded. The number of new 52-week highs stood at 399 against just six new lows. On the Nasdaq, 70% of stocks rose, with advancers outpacing decliners 3,013 to 972. Advancing volume represented roughly 79% of the total, while new highs surpassed new lows by 456 to 43. This broad participation reflects strong investor confidence across various sectors.
European Markets Mixed: The pan-European Stoxx 600 closed 0.21% lower as investors assessed economic and political outlooks. Notable declines included Hugo Boss, which plunged 7.5% after cutting its full-year sales outlook, and Burberry, which fell 5.2% following a profit warning on weak luxury demand. The FTSE 100 Index and CAC 40 declined 0.22% and 0.7% respectively, while Sweden’s Swedbank fell 1.3% after reporting a fall in second-quarter net profits. Conversely, Ocado rose 6% after reporting a lower first-half loss and raising its full-year guidance.
Asia-Pacific Markets Show Mixed Performance: Mainland China’s CSI 300 rose 0.63% to 3,498.28, led by consumer stocks. Hong Kong’s Hang Seng index fell 1.52%, dropping more than 5%. India’s Nifty 50 hit an all-time high, gaining 0.20%. Japan’s Nikkei 225 gained 0.2% to 41,275.08, and South Korea’s Kospi climbed 0.18% to 2,866.09. Australia's S&P/ASX 200 slipped 0.23%, retreating from its all-time closing high on Monday.
Oil Prices Decline: Brent crude futures fell by 0.8% to $84.19 a barrel, and West Texas Intermediate (WTI) crude dropped 0.9% to $81.19 a barrel, amid concerns over slowing demand in China. The weaker Chinese economic data cast doubts on the optimism regarding China’s oil demand outlook, impacting global oil prices.
Treasury Yields Drop: The 10-year US Treasury yield fell nearly 7 basis points to 4.16%, while the 2-year Treasury yield declined almost 3 basis points to 4.42%. This decline in yields reflects market anticipation of easing monetary policy by the Federal Reserve, contributing to the positive sentiment in the equity markets.
IMF Upgrades UK Growth Forecast: The International Monetary Fund (IMF) raised its 2024 growth outlook for the UK to 0.7% from 0.5%, providing a boost to the country’s new Labour government. The IMF maintained its forecast for 1.5% growth in 2025, following a period of economic stagnation. Investment banks Goldman Sachs and Deutsche Bank also revised their forecasts upward, citing favourable fiscal plans by the new government.
FX Today:
Gold Reaches All-Time High: XAU/USD surged to $2,465, gaining more than 1.70%, and setting a new record high. The price cleared $2,450, signalling potential for further gains. The Relative Strength Index (RSI) indicates bullish momentum, approaching overbought conditions. The next resistance levels are at $2,475 and $2,500. Should prices fall, the first support is at $2,450, followed by $2,400, with further support at $2,392.
GBP/USD Struggles Below 1.3000: GBP/USD is trading at 1.2946 after peaking at 1.2980. If the pair drops below 1.2894, it may head towards 1.2860 and then to the 1.2800 level. Support lies at the 50-day moving average (DMA) of 1.2723. On the upside, resistance is seen at 1.2995, followed by the 1.3000 mark, and further gains could target 1.3125 and 1.3142.
CAD Struggles After Mixed CPI Data: The Canadian Dollar (CAD) showed little movement on Tuesday following a mixed Canadian Consumer Price Index (CPI) report. USD/CAD hovered around the 1.3700 handle, with broad-market dynamics driving expectations of a September rate cut. The pair struggled to gain momentum, remaining below 1.3700 after recovering from a swing low below 1.3600 last week.
AUD Extends Losses, Focus on Labor Data: The Australian Dollar (AUD) continued to decline against the USD, falling to 0.6730. Despite recent losses, AUD/USD's outlook remains positive, retaining levels not seen since January. Following a July rally of over 1.5%, profit-taking prompted a correction. Buyers aim to sustain the 0.6700-0.6730 range, with support at 0.6680 and 0.6650.
NZD/JPY Extends Bearish Streak: The NZD/JPY cross fell below 96.00, extending its losing streak to five days and down over 2.50% since last week. Immediate support levels are at 95.50 and 95.30. A fall below these levels could confirm bearish dominance. Resistance is at 97.00, the 20-day Simple Moving Average (SMA) at 97.70, and the critical level of 98.00.
EUR/USD Regains 1.0900: The EUR/USD pair rebounded to 1.0910 after dipping below 1.0900 earlier. The U.S. Dollar Index hovered around the low-104.00s following strong U.S. retail sales data. Resistance is expected at 1.0922, with further hurdles at 1.0981 and the psychological 1.1000 level. On the downside, support is seen at the 200-day SMA of 1.0806, the June low of 1.0666, and the May low of 1.0649. The RSI rose to around 60, indicating a potential for further gains.
Market Movers:
Caterpillar and UnitedHealth Lead Dow Gains: Industrial bellwether Caterpillar surged more than 4%, benefiting from the positive market sentiment towards cyclical stocks. UnitedHealth advanced 6.5% on the back of better-than-expected second-quarter results, making it the top performer in the Dow. These gains highlight the strength in industrial and healthcare sectors.
Bank of America Gains on Positive Earnings: Bank of America saw its shares increase by over 5% following its earnings report, which exceeded analyst expectations. The bank's strong financial results highlight its resilience and profitability in the current economic environment.
Morgan Stanley Edges Up on Solid Results: Morgan Stanley added nearly 1% as it reported earnings that surpassed analyst forecasts. The positive earnings report reflects the strength and stability of the financial sector amidst broader market optimism.
Five Below Plummets on CEO Departure and Bleak Guidance: Five Below shares tumbled nearly 9% after announcing CEO Joel Anderson's resignation and issuing a bleak guidance for Q2 earnings and revenue. The company's interim president and CEO, Kenneth Bull, will face challenges navigating the firm through this transitional period.
J.B. Hunt Transport Services Falls on Weak Q2 Results: J.B. Hunt Transport Services saw its shares drop 3% after reporting Q2 earnings of $1.32 per share, missing analyst expectations of $1.52 per share. Revenue also fell short at $2.93 billion, compared to the expected $3.04 billion, pressured by higher insurance expenses and a soft freight market.
Hancock Whitney Declines on Lower Deposits: Hancock Whitney shares slid more than 6% after the bank reported Q2 earnings of $1.31 per share, down from $1.35 per share a year earlier. Total deposits declined by $575.2 million to $29.2 billion, reflecting challenges in attracting and retaining depositors.
Charles Schwab Drops on New Account Additions Miss: Charles Schwab led the S&P 500 losers, closing down more than 10% after reporting the addition of 985,000 new accounts in Q2, below the consensus of 1.04 million. The disappointing figures also impacted other financial service firms, with Raymond James Financial closing down more than 6% and Ameriprise Financial falling over 3%.
As the markets closed on Tuesday, the record highs of the Dow Jones Industrial Average and the robust performance of the Russell 2000 underscored a broad-based rally fuelled by hopes of imminent interest rate cuts. Investors rotated from technology giants to small-cap and cyclical stocks, signalling confidence in a more diverse range of sectors. Despite mixed global performances and challenges in the financial and industrial sectors, the overall market sentiment remains positive, strengthened by strong retail sales data and earnings beats from major financial institutions. As the Federal Reserve's potential easing looms, the market's optimism points to continued resilience and adaptability amidst evolving economic conditions.
