Stocks Climb on Hopes Consumer Spending Will Hold Up

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +1.22%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.03%. 

U.S. stock indexes this morning are moderately higher on hopes that consumer spending will continue to hold up.  Travel stocks are rallying today after Bank of America said spending on debit cards is up +10% in the first two weeks of July, with a shift in spending towards experience and travel.  Today’s U.S. housing data was mixed for stocks as June housing starts fell more than expected to a 9-month low, but June building permits fell less than expected. 

Investors have recently exited stocks and moved into cash, according to the Bank of America’s monthly fund manager survey.  The survey indicated that as of July 15, investor allocation to stocks plunged to its lowest since October 2008, while exposure to cash surged to the highest since 2001.

U.S. June housing starts unexpectedly fell -2.0% m/m to a 9-month low of 1.559 million, weaker than expectations of an increase to 1.580 million. June building permits, a proxy for future construction, fell -0.6% m/m to 1.685 million, stronger than expectations of 1.650 million.

Today’s stock movers…

Cruise line operators and airline stocks are rallying today after Bank of America said, “consumers continue to spend at a healthy pace,” with spending on debit cards up +10% in the first two weeks of July with a shift in spending towards experience and travel.  Carnival (CCL) is up more than +7% to lead gainers in the S&P 500.  Also, Royal Caribbean Cruises (RCL) is up more than +4%.  In addition, United Airlines Holdings (UAL), Delta Air Lines (DAL), and American Airlines Group (AAL) are up more than +3%. 

Travel stocks are also gaining today on the Bank of America report.  Booking Holdings (BKNG) is up more than +3% to lead gainers in the Nasdaq 100.  Also, Host Hotels & Resorts (HST), Marriot International (MAR), and Wynn Resorts (WYNN) are up more than +3%.  Expedia Group (EXPE), Hilton Worldwide Holdings (HLT), and MGM Resorts International (MGM) are up more than +2%. 

Dow (DOW) is up more than +4% to lead gainers in the Dow Jones Industrials on optimism that the company will report strong quarterly earnings results Thursday.  Analysts are estimating the company’s revenue climbed +12% in the latest quarter from the same period a year earlier. 

General Motors (GM) is up more than +4% today after the company announced it would start selling a battery-powered Chevrolet Blazer next year, followed by the launch of the electric Chevy Silverado and Equinox.

Signature Bank/New York (SBNY) is down more than -10% today to lead losers in the S&P 500 after it reported a -$5 billion outflow of deposits in Q2.

IBM (IBM) is down more than -6% today to lead losers in the Dow Jones Industrials after cutting its forecast for free cash flow to the lower end of its $10.0-$10.5 billion range, citing the strong dollar and the loss of business in Russia.

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are down -6 ticks, and the 10-year T-note yield is up +3.0 bp at 3.015%.  Weakness in German bunds is undercutting T-note prices as the 10-year German bund yield climbed to a 1-week high today at 1.276%.  Strength in stocks today is also reducing the safe-haven demand for T-notes.

The dollar index (DXY00) this morning is down by -0.77% and posted a 1-1/2 week low.  A rally in stocks today has curbed liquidity demand for the dollar.  Also, strength in the euro weighs on the dollar as EUR/USD climbed to a 1-1/2 week high today.

EUR/USD (^EURUSD) is up by +1.02% today and rose to a 1-1/2 week high.  A jump in European government bond yields today gave EUR/USD a boost.  The 10-year German bund yield jumped to a 1-week high today on a report from Reuters that said that ECB policymakers might consider raising interest rates on Thursday by 50 bp instead of 25 bp because of the worsening inflation backdrop.  The euro also garnered support from today’s data that showed Eurozone May construction output rose +0.4% m/m, the first increase in 3 months.

USD/JPY (^USDJPY) today is down -0.46%.  The yen is moving higher for a third session as it recovers further from last Thursday's 24-year low against the dollar.  The main supportive factor for the yen is short-covering ahead of the BOJ’s policy meeting on Thursday.

August gold (GCQ22) this morning is down -1.7 (-0.10%), and September silver (SIU22) is down -0.165 (-0.88%.)  Precious metals this morning are moderately lower.  A report from Reuters that said the ECB may consider a 50 bp rate hike Thursday instead of a 25 bp rate hike is weighing on gold prices today.  Also, the strength in equities today is reducing the safe-haven demand for precious metals.  However, a weaker dollar today is limiting losses in precious metals. 

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