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U.S. Stocks Finish Mixed Amid Strong Bank Earnings And Record Consumer Sentiment 

U.S. stocks closed mixed on Friday,14th July 2023 after trading much higher earlier in the day. 

The market opened higher on the back of strong Bbank earnings to kick off the season. Additionally, The University of Michigan’s survey of consumer sentiment further boosted market sentiment. 

In July U.S. consumer sentiment jumped to its highest since September 2021, exceeding all economist forecasts for the biggest one-month advance since 2006. 

Meanwhile, short-term inflation expectations ticked higher in early July to 3.4% from 3.3% a month earlier. That’s still well below last year’s peak of 5.4%. Furthermore, economists predict a 3.1% increase in costs on an annual basis over the next five to ten years. 

The early buying momentum was also supported by positive Consumer Price Index (CPI) and Producer Price Index (PPI) data from previous days. 

Following the inflation data, bond markets experienced a rally, reversing the recent selling trend and causing the 2-year bond yield to fall below 5% and the 10-year yield to drop below 4%. 

For the week, the Dow rose by 2.3%, the S&P 500 gained 2.4% and the technology-heavy Nasdaq jumped 3.3%. 

Here are the closing levels on Friday, 14th July 2023:

 Last Change %Change 
Dow Jones 34,509.03 +113.89. +0.33% 
S&P 500 4,505.42 -4.62 -0.10% 
Nasdaq Comp14,113.70. -24.87. -0.18% 
U.S. 10Y 3.83%   
VIX 13.32 -0.22 -1.65% 

The price action suggests that the market will continue to rise as long as there isn’t any significantly negative news. I also mentioned that the rally can be sustained if companies report positive earnings, which had a good start with the recent bank results. 

However, it’s important to note that while blue-chip banks performed well, smaller or regional banks may not see the same level of success. 

Regardless, as long as the news remains favorable, investors are inclined to continue buying. Even with the expected rise in interest rates from the Fed, and the possibility of further rate hikes, the market seems to believe in a soft landing.

In this scenario, there seems to be no option but to keep buying.  

Those who do not share this belief have experienced a harsh market, as shorts have been heavily punished. 

It’s important to remember that markets don’t move in a straight line, but for now, there appears to be enough momentum to continue pushing higher. However, we should also be cautious as the biggest market selloffs often arise from overconfidence. While that day may come, I have a feeling that we are not quite there yet. 

Source: CBOE, Bloomberg 

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years.

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