Stocks finished higher Friday as investors looked to snap a five-day losing streak amid easing bets on a jumbo Fed rate hike later this month and a solid reading of June retail sales that underscored the strength of the American consumer.
The gains came despite weaker-than-expected earnings from Wells Fargo (WFC), which followed its larger rival JPMorgan (JPM) in setting aside a big number to cover for potential increases in bad loans as the broader economic outlook deteriorates.
Citigroup's (C) surprisingly solid second quarter earnings also added to the cautiously upbeat mood, as the lender set aside a smaller portion of its profits to cover for rising loan default risks.
Retail sales were also impressive, rising 1% in June to a collective $680.6 billion, the Commerce Department said, handily beating the Street consensus forecast of a 0.8% gain.
Recession concerns remain at the forefront overseas, however, following a much weaker-than-expected reading of second-quarter GDP out of China, which showed the world's largest economy narrowly avoiding contraction with growth of just 0.4%.
That's the slowest -- apart from the direct Covid hit in the first quarter of 2020 -- in at least thirty years and raises big question about the impact of its broader health policies heading into the second half of the year.
The data failed to keep a lid on global oil prices in overnight trading, however, as investors offset fading demand from the world's biggest energy importer and focused on President Joe Biden's controversial visit to Saudi Arabia.
Biden met with King Salman bin Abdulaziz, as well as Crown Prince Mohammed bin Salman on Friday as part of his broader Middle East visit arranged, in part, to talk energy policy with the world's biggest oil producer.
Biden is expected to push the Kingdom -- which he called a "pariah state" during his 2019 election campaign -- to use its influence with the OPEC cartel to boost production and offset the impact of sanctions placed on Russian crude exports. He dodged questions about Jamal Khashoggi, a Washington Post journalist who was murdered by agents of the Saudi Crown Price in 2018.
The markets saw some soothing remarks from Fed Governor Christopher Waller and St. Louis Fed President James Bullard, who both indicated their preference for a 75 basis point rate hike when the Fed meets next starting on July 26.
"So far, we've framed this mostly as 50 versus 75 at this meeting," Bullard told the Nikkei Business Newspaper. "I think 75 has a lot of virtue to it, because the long-run neutral that the committee has, according to the Summary of Economic Projections, is actually about 2.5%."
The CME Group's FedWatch, which initially put the odds of a 100 basis point hike at nearly 90% following the shocking June inflation print of 9.1%, is now indicating just a 46.4% chance.
Still, Fed rate hikes are expected to be significant and ongoing as the central bank steps-up its fight against the fastest inflation in four decades, and bond markets are betting the cost of controlling it will tip the domestic economy into recession.
Benchmark 2-year Treasury note yields traded at 3.122% in New York dealing, against a 2.923% rate for 10-year notes, holding the so-called 'inversion' of the yield curve -- an accurate predictor of recession -- at the steepest since December of 2000.
On Wall Street, the S&P 500 gained 1.92% while the Dow Jones Industrial Average finished up 658 points or 2.15%, to 31,288, thanks in part to another solid quarter earnings report from UnitedHealth Group (UNH). The tech-focused Nasdaq gained 1.79%. All three indexes were lower for the week.
UnitedHealth Group shares gained 5.4%, adding around 180 points to the Dow, after it posted better-than-expected second quarter earnings, and lifted its full-year profit forecast, as revenues from its healthcare solutions division Optum continued to paced topline gains.
Citigroup rose 13.1% after its solid second quarter earnings, while Wells Fargo gained 6.2% after it published weaker-than-expected second-quarter earnings as the group set aside more than half a billion dollars to cover for bad loan losses over the coming months.
Pinterest (PINS) shares, meanwhile, surged 16.3% after the Wall Street Journal reported that activist investors Elliott Management have amassed a more than 9% stake in the social media group.
