The S&P 500 and the Nasdaq advanced on Tuesday as solid big bank results and a cooler-than-expected inflation report boosted risk appetite amid rising Middle East tensions. The gains came while the battle for control over the Strait of Hormuz drove ramped-up airstrikes between the United States and Iran, a reminder that markets can cheer profit and price data even as state violence keeps grinding on.
Who Gets the Relief
The Labor Department's Consumer Price Index showed inflation cooled more than analysts expected in June, largely because energy price pressures eased amid last month's signs of progress in U.S.-Iran peace negotiations. That cooling gave Wall Street a fresh excuse to breathe easier. It also gave the Federal Reserve more room to keep doing what central bankers do best: manage the damage after the system itself has already squeezed people.
Chuck Carlson, chief executive at Horizon Investment Services in Hammond, Indiana, said, "The inflation report seems to have weakened the argument that the Fed is going to raise rates." He added, "It gives the Fed cover, for now." Carlson also said, "(Warsh) is saying we can bring down inflation, and that's what the people he was speaking to want to hear," and, "And maybe inflation is going to come down without having to raise rates."
That’s the language of managed consent. The people at the top get cover. The people at the bottom get the bill.
Who Holds the Levers
U.S. Federal Reserve Chair Kevin Warsh sat for his first congressional testimony since his confirmation, in part to lay out the central bank's plan to contain upward price pressures. His testimony came as the battle for control over the Strait of Hormuz led to ramped-up airstrikes between the United States and Iran and boosted crude oil prices, reviving fears of upward price pressures. The central bank’s answer to the chaos of empire and markets is the same old ritual: testimony, policy meeting, rate talk, and a promise that the apparatus can still steer the wreckage.
Following the CPI report, financial markets were pricing in an 83.4% likelihood that the Fed will let its key interest rate stand at the conclusion of its July policy meeting, up from 58.3% on Monday. Markets expect at least one 25-basis-point rate hike before year-end, according to CME's FedWatch tool. The numbers matter because they shape borrowing, debt, and the cost of survival for everyone who doesn’t sit in a boardroom or a trading desk.
Who Profits First
Second-quarter earnings season began with five big U.S. banks reporting solid results, buoyed by trading strength and dealmaking. Goldman Sachs surged 9% after it surpassed second-quarter profit expectations, as dealmaking picked up pace and geopolitical uncertainties boosted its trading business. JPMorgan Chase and Bank of America advanced 2.5% and 1.9%, respectively, after delivering consensus-beating profits. Citigroup slid 5.3% as worries over expenses overshadowed its profit beat, while Wells Fargo dropped 2.7%. IBM shares tumbled 25.2% after the company warned second-quarter revenue would fall below estimates.
The pattern is plain. War jitters, inflation fears, and central bank signaling all feed the same machine. The banks win when the ground shakes. Goldman Sachs got a 9% jump. JPMorgan Chase and Bank of America climbed after beating expectations. The people who actually live with higher prices, unstable work, and the fallout from airstrikes don’t get a trading pop.
The Dow Jones Industrial Average rose 10.02 points, or 0.02%, to 52,508.66, the S&P 500 gained 28.55 points, or 0.38%, to 7,543.89 and the Nasdaq Composite gained 233.83 points, or 0.90%, to 26,107.01. Among the 11 major sectors of the S&P 500, tech shares registered the biggest percentage gain, while healthcare stocks were the biggest laggards. Advancing issues outnumbered decliners by a 1.78-to-1 ratio on the NYSE. There were 205 new highs and 108 new lows on the NYSE. On the Nasdaq, 2,651 stocks rose and 2,103 fell as advancing issues outnumbered decliners by a 1.26-to-1 ratio. Volume on U.S. exchanges was 16.38 billion shares, compared with the 21.66 billion average for the full session over the last 20 trading days.
The market’s celebration says plenty. The state escalates abroad, the Fed manages prices at home, and the banks cash in while everyone else is told to wait for stability that never seems to arrive.