Friday market action in the summer months can be somewhat lethargic, but investors got a respite from that scenario today. One of the driving forces behind the Friday rally was the lingering belief that the Federal Reserve will cut interest rates later this month.
That was enough to power the Nasdaq Composite higher by 0.59% while the S&P 500 rallied above 3,000, gaining 0.39%. The Dow Jones Industrial Average continued its move above 27,000, adding 0.82% to finish the week.
“Market expectations for lower rates currently sit at 100%, according to the CME Group’s FedWatch tool. Traders are also pricing in a 20% chance of the Fed cutting by 50 basis points,” reports CNBC.
In late trading, close to 25 of the Dow’s 30 components were higher, but Friday was another troublesome day for the index’s healthcare constituents, as all three of the Dow’s pharmaceuticals names traded lower.
Johnson & Johnson (NYSE:JNJ) was the first offender. JNJ slid 4.15% on more than double the average daily volume on its way to shedding about $15 billion in market value. This was after news broke that the Justice Department is pursuing a criminal probe into the company possibly covering up health risks associated with its popular talcum powder.
“J&J disclosed in its annual report in February that it had received subpoenas from the Justice Department and Securities and Exchange Commission related to the ongoing baby powder litigation but did not give more details,” according to Reuters.
Better News Here With GS, DOW, and CAT
Goldman Sachs Group (NYSEARCA:GS) added 1.23% after research firm IHS Markit said it is likely the investment bank will reveal a dividend increase next week. Goldman recently forecast an almost 50% bump to its quarterly dividend to $1.25 a share from 85 cents, which is what Markit is expecting, too.
On a light news day and below-average volume, chemicals maker Dow Inc. (NYSE:DOW) was the Dow’s biggest winner, surging 4.04%. The one news item that possibly sparked the rally in shares of Dow was a report from FactSet. The report highlighted the stock as the member of the Dow Jones Industrial Average with the most potential upside over the next 12 months.
The research firm sees Dow stock climbing more than 22% over the next year, a move that would take the shares over $60.
Caterpillar (NYSE:CAT) jumped 3.28% today. The industrial machinery maker joined DOW on the list of Dow components expected to generate big returns over the next year. FactSet is forecasting almost 12% for shares of Caterpillar over the next year. As it is, the stock is up 8% over the past month and could offer investors a compelling mix of growth and income.
Bottom Line: Fun Starts Next Week
Second-quarter earnings season starts in earnest next week. Financial services, the S&P 500’s third-largest sector weight, is the sector that will dominate earnings headlines next week. But due to that group’s domestic focus, those reports will not provide much in the way of tariff-related guidance.
However, bank earnings could present their own set of challenges for investors.
“Kenneth Leon, CFRA Research’s bank analyst, says the capital markets, while improved, are likely to be a wild card for big bank earnings this quarter, with year-over-year comparisons challenging for debt underwriting and trading operations,” according to CNBC.
Bottom line: prepare for some excitement — maybe even some volatility — over the next several weeks, particularly if cyclical sectors like industrials and technology deliver earnings disappointments.
Todd Shriber does not own any of the aforementioned securities.