Wall Street earnings, AI stocks push S&P 500 higher

U.S. equities rose Tuesday as results from Bank of America Corp. and Morgan Stanley bolstered bank shares, and a rally in stocks linked to artificial intelligence resumed.

Bank of America delivered a surprise gain from its core Wall Street businesses. Morgan Stanley executives pointed to an improved outlook. And in technology, Microsoft Corp. set an expensive price tag on new AI products, buoying the sector.

The S&P 500 gained 0.7% while Treasury yields pared earlier losses as the corporate updates were coupled with disappointing economic data. Figures on industrial production and retail sales missed estimates, and traders are now fully pricing in a quarter-point hike at the Federal Reserve’s meeting next week.

Signs of slowing inflation and an improving economic picture have led traders to dial back wagers on how high the U.S. overnight benchmark rate will go. However, quarterly forecasts from policy makers have shown a median expectation of two more quarter-point increases this year in order to bring the rate of inflation in line with the Fed’s target. 

“The current picture on the consumer is a bit blurry. It seems that excess savings buoyed retail activity in recent months but consumers are quickly depleting those excess reserves and starting to use credit to support spending habits,” Jeffrey Roach, chief economist at LPL Financial, said.

His comments were echoed by Rubeela Farooqi, chief U.S. economist at High Frequency Economics, who said consumers continue to face constraints from higher borrowing costs and elevated prices. “However, a still-strong labor market, positive real disposable incomes and a gradual easing in price pressures appears to be supporting consumption for now.”

In Europe, stocks and bonds were also higher after ECB council member Klaas Knot said monetary tightening beyond next week’s European Central Bank meeting was anything but guaranteed — suggesting officials could soon pause their campaign of interest-rate hikes.

The Stoxx Europe 600 rose 0.6% while the yield on 10-year German securities fell nearly 10 basis points to 2.4%, touching a roughly two-week low.

“It’s clear that it’s the receding inflation narrative which is driving everything,” said Gilles Guibout, a portfolio manager at Axa Investment Managers in Paris. “Investors are feeding on hope: hope that US rates will get down sooner and hope that China will launch a stimulus package to beef up consumption.”

The wild card is China, where a stuttering recovery is leading to disquiet among investors considering the knock-on effects from a slowdown in the world’s growth engine. Equities in mainland China and Hong Kong fell Tuesday. Elsewhere, gold rose, oil gained and the dollar was little changed. 

Key events this week:

• Eurozone, UK CPI, Wednesday
• U.S. housing starts, Wednesday
• China loan prime rates, Thursday
• U.S. initial jobless claims, existing home sales, Conf. Board leading index, Thursday
• Japan CPI, Friday

Some of the main moves in markets:  

Stocks

• The S&P 500 rose 0.7% as of 4:08 p.m. New York time
• The Nasdaq 100 rose 0.8%
• The Dow Jones Industrial Average rose 1.1%
• The MSCI World index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1230
• The British pound fell 0.3% to $1.3040
• The Japanese yen fell 0.1% to 138.89 per dollar

Cryptocurrencies

• Bitcoin fell 0.6% to $29,743.3
• Ether rose 0.2% to $1,893.89

Bonds

• The yield on 10-year Treasuries declined two basis points to 3.79%
• Germany’s 10-year yield declined nine basis points to 2.39%
• Britain’s 10-year yield declined 10 basis points to 4.33%

Commodities

• West Texas Intermediate crude rose 2.1% to $75.71 a barrel
• Gold futures rose 1.3% to $1,981.40 an ounce

This story was produced with the assistance of Bloomberg Automation.