S&P 500 Rallies as Surprise Consumer Strength Keeps Bulls Marching on

By Yasin Ebrahim

Investing.com – The S&P 500 jumped Friday, underpinned by data pointing to unexpected strength in the consumer, and another wave of better-than-expected quarterly earnings.

The S&P 500 rose 0.8%, the Dow Jones Industrial Average gained 1.1%, or 386 points, the Nasdaq climbed 0.5%.

The Commerce Department said Friday that retail sales rose  0.7% last month. That confounded economists’ forecast for a 0.2% decline. The retail sales control group – which has a larger impact on U.S. GDP –  gained 0.8%, above expectations for a 0.4% rise. 

The gain in retail sales suggests that the impact of the delta variant of the coronavirus on consumer spending, which makes up about 66% of economic growth, is starting to wane.

“Consumer spending has remained resilient and reflects strong buying power and favorable credit conditions. The increase in food services throughout the Delta wave suggests households are better equipped to manage around Covid flare-ups,” Morgan Stanley (NYSE:MS) said in a note.

The backdrop of optimism on the economic recovery pushed Treasury yields higher, underpinning bank stocks, which have been bolstered by upbeat quarterly results from major Wall Street banks.

Goldman Sachs NYSE:GS) was the latest major bank this week to report blowout results. The bank reported earnings of $14.93 per share, well above expectations for $10.18 per share, sending its share price up more than 3%.

PNC Financial Services(NYSE:PNC) also delivered quarterly results that beat on both the top and bottom lines, but its shares slipped 1%.

Financials are expected to continue to ride Treasury yields higher as investors bet that rates still have room to advance.

A break above key resistance on 10-year Treasury yield of 1.75% would “complete the bearish thesis on bonds and confirm a move on the 10-year Treasury yield to 2%, or a little above there,” David Keller, Chief Market Strategist at StockCharts, told Investing.com in an interview on Friday.. “I think we'll most likely get there, which is why I think financials probably present one of the better opportunities."

JB Hunt Transport Services  (NASDAQ:JBHT), meanwhile, was up more than 9% after the shipping company reported better-than-expected earnings of $1.88 per share on $3.14 billion in revenue

Energy was up about 1% as oil prices continued to rack-up gains on bets of possible supply shortages on higher demand as power plants are expected to switch to oil amid soaring natural gas, and coal prices.

The odds of a supply shortage were exacerbated by expectations for higher jet fuel demand as travel activity is set to gather pace in the months ahead after the U.S. said it would begin accepting vaccinated visitors from abroad from Nov. 8.

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In other news, Virgin Galactic (NYSE:SPCE) slumped 17% after delaying its spaceflight tests to Q4 2022. The delay prompt negative calls from Wall Street, with Bank of America (NYSE:BAC) cutting its price target on the stock to Galactic to $20 a share from $25 per share.

The strong end to the week for the broader market follows several sessions of wild swings recently as it navigates its way through a traditional period of volatility. But it won't be long until the market finds its footing and trends higher. 

“September and October tend to be the seasonally weakest parts of the year, while November and December tend to be the seasonally strongest parts of the year,” Keller said.