Bulls Able to Maintain Gains as Stocks Rally…..

U.S. equities rallied in today’s session, with the bulls showing their strength in their ability to sustain the gains after failing to do so yesterday. Investors remained on edge, however, as persistent inflation has caused global central banks to move toward tighter monetary policies, sparking concerns of a possible recession. Earnings season continued to ramp up as Dow member IBM beat on both the top and bottom line, but foreign exchange affects and soft revenue in its software caused its stock to fall. Fellow Dow component Johnson & Johnson also beat estimates, but a downward adjustment to its guidance pressured its shares, while Lockheed Martin eked out a gain despite posting earnings that were incomparable to estimates due to issues with contract timing. The economic calendar reaffirmed recent softening in the housing market as housing starts unexpectedly fell, extending a recent decline, while building permits also dipped but less than expected. Treasuries were lower as yields moved higher, and the yield curve remained inverted. The U.S. dollar fell, continuing to come back off 20-year highs, crude oil was higher, and gold was little changed. Europe saw broad gains as investors anticipate the European Central Bank to hike rates this week for the first time in 11 years, and Asia finished mostly lower with Japan the outlier in the green.

The Dow Jones Industrial Average jumped 754 points (2.4%) to 31,827, the S&P 500 Index increased 106 points (2.8%) to 3,937, and the Nasdaq Composite advanced 353 points (3.1%) to 11,713. In moderate volume, 4.0 billion shares of NYSE-listed stocks were traded, and 5.1 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.32 to $100.74 per barrel. Elsewhere, the gold spot price nudged $0.30 lower to $1,709.70 per ounce, and the Dollar Index lost 0.6% to 106.70.

Housing starts unexpectedly extend decline

Housing starts for June fell 2.0% month-over-month (m/m) to an annual pace of 1,559,000 units, below the Bloomberg consensus estimate of a rise to a 1,580,000 unit pace and compared to May’s upwardly-revised pace of 1,591,000 units. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, dropped by 0.6% m/m to an annual rate of 1,685,000, north of expectations calling for 1,650,000 units, and compared to the unrevised 1,695,000 unit pace in May.

Treasuries were lower, and the inversion of the 2-year and 10-year notes remains intact, with the markets grappling with an aggressive Fed to fight high inflation and what the ultimate impact will be on the economy.  The yields on the 2-year and the 10-year Treasury notes rose 6 basis points (bps) to 3.22% and 3.02%, respectively, while the 30-year bond rate gained 4 bps to 3.18%.

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