Shares trim early rise; Goldman leads Dow gainers as buyers reduce Fed rate-hike expectations

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US stocks rose, but gave back some of the gains seen after stronger-than-expected quarterly results from Goldman Sachs and attempted to build on upside momentum from late last week as investors assessed the scope of an expected Federal Reserve interest rate hike next week.

How stocks are trading
  • The Dow Jones Industrial Average DJIA, +0.59% was up 195 points, or 0.6%, at 31,482, after rising 356 points at its session high.

  • The S&P 500 SPX, +0.74% gained 29 points, or 0.7%, to trade at 3,892.

  • The Nasdaq Composite COMP, +1.19% jumped 126 points, or 1.1%, to 11,578.

On Friday, the Dow rose 658 points, or 2.2%, as it and the S&P 500 and the Nasdaq Composite trimmed weekly losses.

What’s driving markets

Shares of Goldman Sachs Group Inc.
GS, +3.20% were up nearly 4% to lead Dow gainers after the investment-banking giant posted a stronger-than-expected second-quarter profit, although earnings fell from the year-ago quarter.

Bank of America Corp. BAC, +1.10%
shares rose 1.1% after the bank fell short of Wall Street’s profit estimate, but revenue matched the analyst view as the first full week of the US second-quarter earnings season gets under way. IBM, +0.11% will deliver its figures after the closing bell. Reports from other big banks, such as JPMorgan Chase JPM, +0.08%,
were not initially well-received last week.

But the market mood brightened by Friday—and continued on Monday, after Federal Reserve officials talked down the prospects of a 100-basis point rate hike at next week’s policy meeting.

Reading: Investors are obsessed with size of Fed’s next rate hike. Here’s what they’re missing.

The chances of such a sharp tightening are now less than 30%, compared with more than 90% last Thursday, and a 75 basis point move to 2.25% to 2.50% is baked in. The dollar index DXY, -1.06% eased from 20 -year highs in response, falling 0.6% to 107.44.

Traders were watching to see if upside momentum would continue after a strong finish last week.

“Bullish momentum in equities has been elusive this year, but Thursday was conspicuous in that both the stock market and crude oil made multiweek or multi-month lows before reversing to close near their highs of the day, and then followed through to the upside on Friday,” said Chris Larkin, managing director of trading at E-Trade from Morgan Stanley, in emailed comments.

“Whether that momentum will carry into this week — or longer — remains to be seen. Though in the past, when the SPX has made similar pullbacks, it was higher one week later more time than not,” he said.

Reading: Why the analyst who called summer stock market bounce now sees more S&P 500 upside

The Fed, however, is unlikely to relent on its aggressive rate-hike pace, especially against a backdrop of a strong labor market and resilient corporate and consumer spending, he said. Longer term, “stagflation could be on the docket.”

Strategists at Deutsche Bank noted that aside from earnings, and with the Fed now in the premeeting blackout period, it would be a quiet week for US macroeconomic catalysts, and that attention may turn elsewhere.

“All things European will be at the forefront of market attention this week with the highlight being the ECB’s likely first rate hike since 2011 on Thursday. Gas flows from Russia after maintenance on the Nord Stream pipeline ends the same day will also be a big focus with the EU expected to detail energy contingency plans the day before,” said Deutsche Bank.

Companies in focus
  • Shares of Dow component Boeing Co.
    BA, +2.37% rose 2.7% after the aerospace and defense giant said Delta Air Lines Inc.
    DAL, +5.78% would order 100 of its 737-10 jets as the air carrier modernizes its single-aisle fleet. Delta shares rose 5.5%.

  • Elon Musk filed a motion Friday opposing Twitter Inc.’s
    TWTR, +0.38% request to expedite a trial over his intention to terminate his $44 billion takeover. Twitter shares were down 0.1%.

How other assets are faring
  • Oil futures were higher with US crude futures CL.1, +3.90% adding 4.2% to trade back over $101 a barrel, also benefiting from signs that US President Joe Biden had not secured an immediate increase in Saudi Arabian supply.

  • The 10-year Treasury yield TMUBMUSD10Y, 2.997% rose 5 basis points to 2.985%. Yields and debt prices move opposite each other.

  • The ICE Dollar index DXY, -1.06% fell 0.9%, helping to inspire gains for gold GC00, +0.60%,
    which rose 0.5%.

  • Bitcoin BTCUSD, +5.93% advanced 6.1% to 22,095.

  • In Europe, the Stoxx 600 XX:SXXP and FTSE 100 UKX, +0.93% each rose 1%

  • Asia markets got an added lift from signs the Chinese authorities will look to support the construction sector and ease monetary policy. Hong Kong’s Hang Seng HSI, +2.70% finished 2.7% higher and the Shanghai Composite SHCOMP, +1.55% climbed 1.6%. Japan was shut for a holiday.

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