S&P 500 Hits All-Time High as Q2 Earnings Season Kicks Off

• The S&P 500, Nasdaq, and Dow all hit record highs last week
• Good news on inflation was a major catalyst
• Earnings season kicks off in earnest this week with American Express and Netflix among those reporting

What Will the Markets do for an Encore After Hitting All-Time Highs Last Week?

The , , and all touched all-time highs last week in what was a record week for stocks.

With Q2 earnings season kicking off in earnest this week, what will the markets do for an encore? Stocks were trading higher Monday morning as two financial behemoths BlackRock (NYSE:) and Goldman Sachs (NYSE:) posted strong earnings, setting the tone for what could be a good earnings season.

Record Week for Stocks

All three of the major market indexes, the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average hit all-time highs last week.

The S&P 500 rose 0.9% last week to close at 5,615 on Friday. Just two days earlier, it had reached an all-time closing high of 5,634 on July 10.

The Nasdaq Composite ticked up 0.2% last week to finish the five-day period at 18,398. It also reached a record high on Wednesday, closing at 18,647.

The Dow Jones finished the week back over 40,000, at 40,001 to be exact. It is the first time it climbed back to 40,000 since it breached that level back in May. While the 40,001 was not a closing high, it did set an all-time high of 40,257 on Thursday before falling back a bit.

There were two major catalysts for all three benchmarks last week. The first was the testimony by Federal Reserve Board Chair Jerome Powell before Congress. He spoke before the Senate on Tuesday and the House on Wednesday, and his comments left investors more confident that rate cuts were coming.

Specifically, Powell talked about how the labor market had cooled to the point where it was in better balance, back to where it was before the pandemic. In essence, it is a sign that monetary policy is working to cool the economy.

The other major catalyst came Thursday, and it had to do with inflation.

Inflation Rate Drops for Third Straight Month

The (CPI) for June came out on Thursday, one day before Powell’s address to the House, and it was also good news. The 12-month inflation rate dropped to 3%, which beat estimates and was down from 3.3% in May. It was the lowest inflation had been in a year, and it was the third straight month that the CPI had declined.

The markets rose on this report, as it was further evidence that inflation was moving sustainably toward the target of 2%, as measured by (PCE) data. The June PCE report comes out on July 26. Last month, the PCE was at 2.6%, and given the CPI numbers in June, it is anticipated that the PCE will drop lower, too.

Following the positive inflation data, the odds of a rate cut in September rose to over 80%, according to CME FedWatch, and the chances of a second cut this year rose to around 50%.

Earnings This Week

The record highs of last week have created some momentum for this week. This is the first full week of earnings report for the second quarter, and already, several of the big bellwether financial stocks, including JPMorgan Chase (NYSE:), BlackRock, and Goldman Sachs have already posted strong results.

The first week is mostly financial firms, with Bank of America (NYSE:), Morgan Stanley (NYSE:), and Progressive (NYSE:) on Tuesday; Johnson & Johnson (NYSE:), Ally Financial (NYSE:), and U.S. Bancorp (NYSE:) on Wednesday; Netflix (NASDAQ:) and Domino’s Pizza (NYSE:) on Thursday; and American Express (NYSE:) on Friday, to name a few.

Also, Powell is scheduled to speak Monday at 12:30 p.m. ET at the Economic Club in Washington, D.C. — his first address since inflation fell to 3%.