MARKET SNAPSHOT: Dow, S&P 500 Shake Off Slumping Bank Stocks To Trade In Record Territory

By Barbara Kollmeyer and Anora Mahmudova, MarketWatch Features Dow Jones Newswires

S&P 500 carves out intraday record

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U.S. stocks gained momentum Friday, despite sharp losses in the financials sector, following a mixed batch of corporate results from some of the nation's biggest banks and poor data on retail-sales and inflation, which led market participants to believe the Federal Reserve is firmly back in a dovish frame of mind.

The Dow Jones Industrial Average traded around records, after logging its 24th record close this year (http://www.marketwatch.com/story/dow-aims-for-fresh-record-as-yellen-emboldens-bulls-2017-07-13) on Thursday, and the S&P 500 carved out an intraday high.

The blue-chip index rose 81 points, or 0.4% to 21,634, led higher by gains of Wal-Mart Stores Inc.(WMT) and Microsoft Corp.(MSFT) Losses in J.P. Morgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS) weighed on the average.

The S&P 500 index rose 10 points, or 0.4%, at 2,458, with all but the financial sectors in positive territory. Real estate and utilities shares were up 0.9% and 0.6%, respectively.

The Nasdaq Composite Index gained 30 points, or 0.5%, to trade at 6,305, on track for its sixth-straight positive close.

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Modest advances on Wall Street follow weaker-than-expected economic releases ahead of the bell. Inflation was flat, while a reading of retail sales slumped, emphasizing persistent weakness in that sector and underlining consumer reluctance to spend freely. The patch of data raises some questions about the Federal Reserve's ability to quickly normalize monetary policy, as it hopes to do, despite signs of anemic growth and stubbornly low inflation.

"I think this morning's economic data once again plays into the narrative that the Fed will be more dovish," said Ian Winer, head of the equities division at Wedbush Securities, in an interview. "It further fuels the sentiment that there's no alternative for stocks."

With weak inflation and less hard data pointing to growth, Winer said the Fed is more likely to think twice about raising rates and may even postpone an expected reduction of the $4.5 trillion balance sheet in September.

"Economic surprises continue to tilt toward the downside in the world's largest economy, suggesting that the Federal Reserve's hawkish stance earlier in the year could once again prove ill-founded," said Karl Schamotta, market strategist at Cambridge Global Payments.

"Market participants are increasingly convinced that the central bank's 'dot plot' rate forecast will be adjusted downward, with the yield curve coming under pressure as investors fade the likelihood of rapid monetary tightening," Schamotta said.

The so-called dot plot refers to a grapht of Fed member expectations for rates into the future, while the yield curve is a line that charts yields across every available maturity. A flattening yield curve, showing a narrowing premium between short-dated yields and long-dated Treasurys, has traditionally been viewed as a sign that investors are bearish on economic prospects.

Need to Know:Here's a quirkier game plan for markets that are 'priced for perfection' (http://www.marketwatch.com/story/heres-a-quirkier-game-plan-for-markets-that-are-priced-for-perfection-2017-07-14)

For the week, the main equity indexes are on track to post solid gains, led by a 2.5% rise for the Nasdaq on the week, a 1.3% gain for the S&P 500 and a 1% climb for the Dow.

Lackluster economic data out Friday led to a drop in 10-year Treasury yields , meaning investors bought notes. Treasury yields fell to 2.28% at one point and currently stand at 2.32%. Bond prices and yields move inversely.

On Wednesday, dovish comments from Fed Chairwoman Janet Yellen in Capitol Hill testimony boosted helped to support hopes that the Fed would moderate its policies, which have been supportive to equity markets and bonds, if coming data proved weak. So far, Yellen has described economic weakness, notably slothful inflation, as temporary.

Stocks to watch: J.P. Morgan (JPM) beat expectations on both revenue and profit, but shares gave up an early initial gain to turn 1% lower.

Citigroup Inc.(C) reported earnings that were better than expected (http://www.marketwatch.com/story/citigroup-tops-profit-and-revenue-estimates-2017-07-14), but it did show signs of a slowdown in trading, with overall trading revenue down 4% and fixed-income trading revenue off 6%. Shares of the bank were trading 0.5% lower.

Wells Fargo & Co.(WFC) reported second-quarter results that were better than expected but shares fell 1.3%.

Ahead of those results, Wall Street had been expecting banks to deliver a weak quarter, potentially kicking off the latest in a string of disappointing earnings seasons (http://www.marketwatch.com/story/bank-earnings-expect-another-meh-quarter-of-weak-trading-revenue-2017-07-10). The shine has come off the sector as hopes have faded that President Donald Trump will push through structural reforms and boost the economy. Disappointment from banks could weigh on the broader market, warned some.

Read:Four key sectors to watch closely this earnings season (http://www.marketwatch.com/story/four-key-sectors-to-watch-closely-this-earnings-season-2017-07-13)

(http://www.marketwatch.com/story/four-key-sectors-to-watch-closely-this-earnings-season-2017-07-13)Economic reportsThe consumer-price index (http://www.marketwatch.com/story/inflation-goes-nowhere-in-june-cpi-shows-2017-07-14), or cost of living, was unchanged last month, largely due to lower gasoline prices. Economists polled by MarketWatch expected the consumer-price index to rise 0.1% month-on-month in June, while core inflation was seen coming in at 0.2%.

Sales at retailers nationwide fell 0.2% last month (http://www.marketwatch.com/story/us-retail-sales-fizzle-out-in-june-2017-06-14)to mark the second straight drop and match the biggest decline of the year

Other markets: In Asia , markets ended the day with modest gains. European stocks (http://www.marketwatch.com/story/european-stocks-waver-but-best-week-in-two-months-in-sight-2017-07-14) finished mostly lower even though the Stoxx Europe 600 posted a slight gain for its best week in two months. A stronger British pound was weighing on the FTSE 100 (http://www.marketwatch.com/story/stronger-pound-holds-ftse-100-back-for-2nd-day-2017-07-14) for a second day.

Crude-oil prices (http://www.marketwatch.com/story/oil-gains-pause-but-optimism-remains-after-iea-report-2017-07-14) rose, along with gold (http://www.marketwatch.com/story/gold-snaps-back-tracking-weekly-rise-even-with-stocks-holding-near-records-2017-07-14), while the dollar followed interest rates lower after disappointing retail sales.

The ICE Dollar index fell 0.6% to 95.18, its lowest level in 10 months.

Read:Saudi Arabia's worst-case oil scenario might surprise you ()

--Barbara Kollmeyer in Madrid contributed to this report.

(END) Dow Jones Newswires

July 14, 2017 13:40 ET (17:40 GMT)