Markets rise as investors digest bank earnings and market rotation

Dow went up 225, advancers over decliners better than 4-1 & NAZ rebounded 203.  The MLP index was fractionally higher to the 292s & the REIT index rose 3+ to 395 following yesterday's rally.  Junk bond funds were in demand & Treasuries barely budged, keeping yields flat (more below).  Oil was higher fractionally to the 83s & gold slid back 6 to 2415 after yesterday's rise.

Dow Jones Industrials 

A measure of wholesale prices rose more than expected in Jun as investors assesses when the Federal Reserve will feel comfortable cutting interest rates.  The producer price index (PPI) rose 0.2% last month, the Labor Dept's Bureau of Labor Statistics reported.  The forecast was expecting a 0.1% increase for the index.  The PPI is now up 2.6% over the past year.  The PPI is a gauge of prices that producers can get for their goods & services in the open market.  In Jun, an increase in the price for services offset a decline for goods.  The reading is an increase from the May number, which was also revised higher.  Today's report said that the index was unchanged in May as compared with a decline of 0.2% in the original release.  The hotter-than-expected PPI reading runs counter to recent data that shows inflation declining, though economists & investors tend to put more weight on the consumer-focused inflation readings.  This report comes shortly after the Jun consumer price index came in cooler than expected yesterday.  The CPI actually showed that headline inflation declined on a monthly basis & now sits at 3% year over year.  The central bank's next policy meeting is at the end of Jul, where it is widely expected to hold rates steady.  Traders have increasingly dialed in on the Sep meeting as the likely time for the first rate cut.  The Fed's preferred inflation reading is the personal consumption expenditure price index & the Jun PCE data is slated for release on Jul 26.

Wholesale prices rose 0.2% in June, slightly hotter than expected

Treasury yields were a bit higher on a slightly hotter reading of wholesale inflation, but still headed for a big decline on the week following a drop in the Jun consumer price index.  The yield on the 10-year Treasury was up by more than 2 basis points to 4.21% & the 10-year yield ended last week at 4.28%.  Meanwhile, the 2-year Treasury yield was last less than 1 basis points higher at 4.498%.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  The producer price index data reflected a slightly hotter-than-expected 0.2% increase in wholesale prices in Jun.  Yields remained slightly higher on the report.  Treasury yields had tumbled yesterday, with the 10-year Treasury yield falling by more than 7 basis points & the yield on the 2-year Treasury tumbling by over 11 basis points.  That came after the Jun consumer price index unexpectedly reflected a 0.1% decline from the previous month, & came in at 3% in an annual basis, which was its lowest level in over 3 years.  The forecast called for the inflation measure to show a 0.1% rise from May & a 3.1% increase from a year earlier.  Core CPI, which excludes food & energy prices, rose 0.1% on a monthly basis & 3.3% from a year earlier & those increases were also slightly lower than forecast.  Investors have been hoping for data to suggest that inflation is on its way back to the Federal Reserve's 2% target range, as this could mean interest rate cuts are on the horizon.  Expectations for the Fed easing monetary policy as soon as Sep jumped following the CPI data release, with traders last pricing in an over 90% chance rates being cut then, according to CME Group's FedWatch tool.

Treasury yields tick higher on a slightly hotter wholesale inflation reading

JPMorgan Chase (JPM), a Dow stock, posted 2nd-qtr profit & revenue that topped expectations as investment banking fees surged 52% from a year earlier.  Earnings jumped 25% from the year-earlier period to $6.12 per share.  Excluding items related to the bank's stake in Visa, EPS was $4.26.  Revenue rose 20% to $51B, topping the estimate, helped by better-than-expected investment banking fees & equities trading results.  CEO Jamie Dimon noted in the release that his firm was wary of potential future risks, including higher-than-expected inflation & interest rates, even while stock & bond valuations currently “reflect a rather benign economic outlook.”  “The geopolitical situation remains complex and potentially the most dangerous since World War II — though its outcome and effect on the global economy remain unknown,” Dimon said.  “There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world.”  A rebound in stock trading activity, especially on the advisory side, was expected to aid banks this qtr, & JPM's results bear that out.  The stock fell 4.90.

JPMorgan Chase tops second-quarter revenue expectations on strong investment banking

Thoughts of lower interest rates are bringing investors into the stock market.  While inflation has been mild in recent months, that's based on monthly readings which can be volatile.  However prices up are substantially over the last 5 years.  That does not get a lot of attention but it is an important to consumers when they buy goods & services.  Even after a few rate reductions, interest rates & prices will still be at very high levels.  That will be a drag on the economy.