US500 - Strong Banks and Cooler Inflation Give Stocks New Fuel

The S&P 500 trades around 7,570 today, pressing against its July highs after two days of good news on almost every front.

Start with the banks. Every quarter, US companies report their results, and banks always go first. This time they delivered. The largest US banks earned about $49 billion in profit for the quarter, up roughly 39% from a year ago, helped by strong trading and dealmaking. BlackRock and Morgan Stanley beat expectations on Wednesday, following JPMorgan, Goldman Sachs, and others a day earlier.

Then add inflation. Consumer prices cooled sharply in June, and on Wednesday producer prices, which measure what businesses charge each other, fell 0.3% for the month. Two soft inflation reports in one week pushed the odds of a Fed rate hike at the July 28-29 meeting down to about 10%. A week ago, a hike was a serious market fear.

Today brings the next two tests. US retail sales for June show whether consumers are still spending. And after the market closes, Netflix opens the technology part of the earnings season.

One caution is worth keeping in mind. The rally is narrow: energy and technology stocks are doing most of the lifting, while most other sectors lag. And oil back above $84 means the inflation relief may not last into July's numbers. Strong retail sales today would help the market broaden. Weak ones would raise new questions.

US500 key levels:

• Resistance: 7,585, then 7,600
• Support: 7,550, then 7,500

Watching: US retail sales today, Netflix results after the close, oil prices as the next inflation risk.

By Born2trade market research department

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