Financial Stocks Rise with Market, Pinnacle and eToro Lead the Way

Financial stocks largely followed the broader market higher this week, with the Financial Select Sector SPDR ETF (XLF) advancing 1.7%. Pinnacle Financial, Qifu, eToro, and Galaxy logged the biggest weekly swings in the financial sector. Israel-based stock eToro rose the most with a market cap over $2B.

Financial stocks followed the broader market's upward trajectory this week, with the Financial Select Sector SPDR ETF (XLF) advancing by 1.7%. Key players in the sector, including Pinnacle Financial, Qifu, eToro, and Galaxy, experienced significant weekly swings. Among these, Israel-based stock eToro stood out, rising with a market capitalization exceeding $2 billion.

The week's market performance was buoyed by a combination of factors. Trade optimism, solid corporate earnings, and reduced uncertainty stemming from new trade deals have been primary drivers. Notably, the recent Japan-U.S. trade agreement reduced tariffs from 25% to 15% and included a $550 billion U.S. investment commitment [1]. This deal, along with others signed with the U.K., Vietnam, Indonesia, and partially with China, has provided a framework for other major countries, signaling a potential resolution to the trade uncertainty that has plagued markets this year.

Economic data also contributed to the positive sentiment. Initial jobless claims have declined, indicating a stable labor market, while retail sales rose more than expected in June. Although inflation remains a concern, it is currently contained, with the expected rise in consumer and producer goods prices being restrained by a decline in services [1]. The recent passage of a new tax bill has brought clarity to fiscal policy, with modest fiscal stimulus expected next year.

However, the market's calm may be tested in the coming week. Big-tech earnings, a key trade deadline, a Federal Reserve meeting, and the monthly jobs report could introduce volatility. The Federal Reserve is under pressure to lower interest rates, with the White House advocating for more aggressive cuts. The Fed's decision to hold rates steady this week is expected, but a September cut is possible if trade clarity improves after the August 1 deadline [1].

The earnings season is also set to be a pivotal moment. With almost 40% of the S&P 500 companies reporting results, including key players like Microsoft, Meta, Apple, and Amazon, earnings are expected to do the heavy lifting from now on. So far, the second-quarter earnings season has been strong, with 83% of companies beating estimates by 7% [1].

While the market has shown resilience, there are risks to be aware of. Meme-stock mania is making a comeback, with some retail traders driving big price swings that are often disconnected from fundamentals. However, broader investor sentiment remains below euphoric levels, suggesting room before true overheating [1].

Investors are advised to stay opportunistic and focus on quality. Record highs confirm market strength, and market internals support this view. Equities are outperforming bonds, cyclical stocks are outperforming defensives, and market-based inflation expectations point to stable inflation over the longer term. However, any deviation from the expected path could stir volatility, especially with seasonality cautioning against overconfidence in late summer and early fall.

References:
[1] https://www.edwardjones.com/us-en/market-news-insights/stock-market-news/stock-market-weekly-update