All three major indexes on Wall Street gained on Tuesday, supported by a series of strong bank earnings.
The Dow Jones Industrial Average closed at 34,951.93, gaining 366.58 points or 1.06 percent. The 30-stock index extended its gaining streak to seven sessions, its longest daily gain streak in over two years.
Meanwhile, the S&P 500 finished at 4,554.98, adding 32.19 points or 0.71 percent. The Nasdaq Composite strengthened by 108.69 points or 0.76 percent to end at 14,353.64. The S&P 500 and Nasdaq traded around their 15-month highs over the past few sessions.
Large U.S. banks reported better-than-expected earnings, enhanced by profits from high interest rates. Morgan Stanley beat earnings estimates as the growth in its wealth management arm offset lower trading revenue. The bank’s stock rose by 6.45 percent, its biggest daily percentage increase since November 2020.
Shares of Bank of America (BofA) also saw a 4.42 percent increase to $30.70 after it reported improved profits from customers’ loan payments. The Charlotte-based bank also revealed that its investment banking and trading divisions performed better than expected.
JPMorgan’s stock gained 0.18 percent to trade at $153.66. The New York-based multinational bank earned more profits from customers’ interest payments and the First Republic Bank deal. JPMorgan bought most of First Republic’s assets in May, boosting its net interest income to a record high.
Charles Schwab bounced by 12.57 percent, becoming the best performer on the S&P 500 index on Tuesday. The financial service firm posted a smaller-than-anticipated decline in its quarterly profit.
The S&P banks index closed 1.90 percent higher at 317.02, the highest closing level in four months. Meanwhile, the KBW regional banking index rose by 4.10 percent to 96.25. Analysts point out that the performance of the two sub-indexes was comparable to before the banking crisis hit in March.
Despite the strong earnings, analysts say U.S. banks will face more challenges soon. Data show that bank deposits have continued to shrink after peaking during the COVID-19 pandemic. The Federal Reserve also revealed that consumer borrowing had slowed down due to high interest rates.
JPMorgan and Wells Fargo reported that they set aside more funds to manage projected losses from commercial real estate loans, signaling a potential downturn in the sector. The latter increased its provision for credit losses by $949 million.
“While we haven’t seen significant losses in our office portfolio to-date, we are reserving for the weakness that we expect to play out in that market over time,” said Wells Fargo CEO Charlie Scharf.
Besides the banking sector, the technology sector also supported Wall Street’s rally on Tuesday. In the S&P 500, technology closed 1.26 percent higher. Microsoft shares gained 3.98 percent to $359.49 after announcing a price increase for its Office program’s new artificial intelligence features.
S&P to hit record high
Analysts predict the S&P 500 will hit a record high by next year. Credit Suisse recently revised its year-end target on the index from 4,050 to 4,700. Credit Suisse Securities USA researcher Jonathan Golub said a more substantial earnings outlook from tech companies and a lower near-term recession risk in the U.S. would support a rally in the index.
BofA forecasts that the S&P 500 may hit the 5,000 level by next year, explaining that the current trends resemble a bullish roadmap in the 1950s and 1980s, with the index seeing a potential upside of at least 13 percent. According to the BofA chart, the S&P 500’s current bullish cycle may last until 2028.