Dow, S&P 500 and Nasdaq score first gains in four sessions ahead of inflation data, earnings season

By Vivien Lou Chen and Frances Yue

Dow ends up by almost 210 points, or 0.6%

U.S. stocks finished higher on Monday, scoring their first gains of the past four trading sessions, ahead of crucial inflation data for June and the start of the second-quarter earnings season this week.

How stocks traded

On Friday, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite finished with weekly losses of 2%, 1.2% and 0.9%, respectively.

What drove markets

Stocks struggled for direction for much of Monday, following last week's relatively robust economic data which pushed bond yields toward cycle highs. But by the end of trading, equities scored gains on optimism that the next major U.S. inflation report could include signs of easing price gains.

The June consumer-price index report is due on Wednesday, and is likely to influence the Federal Reserve's thinking on how many more increases are needed to its benchmark interest- rate target.Read: S&P 500 could surge 100 points this week on inflation data, says Fundstrat's Lee

Tom di Galoma, managing director and co-head of global rates trading at BTIG, said he expects June's annual headline rate from the consumer-price index to drop to around 3% from 4% in May, and the narrower core gauge to "easily" fall to 5% year-over-year and to 4% by year-end.

"Inflation is coming down quite a bit and I don't expect this inflation number on Wednesday will be any different," di Galoma said via phone. He said he expects Fed officials to deliver just one more quarter-of-a-percentage point rate hike later this month, "and then just go home for the balance of the year."

Still, policy makers remained vigilant on Monday about their inflation fight. San Francisco Fed President Mary Daly said a "couple" of additional rate hikes are likely needed this year and that the labor market in the U.S. remains "really strong."

One of her colleagues, Cleveland Fed President Loretta Mester, said the U.S. central bank needs to raise interest rates further to bring inflation down toward the Fed's 2% target.

"In order to ensure that inflation is on a sustainable and timely path back to 2%, my view is that the funds rate will need to move up somewhat further from its current level and then hold there for a while as we accumulate more inflation on how the economy is evolving," Mester said in a speech at the University of California San Diego.

In U.S. economic data, wholesale inventories in the U.S. were unchanged in May following a decline in the prior month -- indicating businesses are producing or stockpiling fewer goods due to an uncertain economy.

The second-quarter U.S. corporate earnings season will kick into gear on Friday, when big banks such as JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) present their numbers.

As second-quarter results begin to roll in this week, "corporate earnings need to deliver on market expectations to support stocks, in our view," according to Jean Boivin, head of BlackRock Investment Institute, and others.

"We see a key divergence in earnings forecasts: They have risen for a few tech firms, while the rest stagnate," they wrote in a note. "Profit margins are shrinking, and we see more pressure ahead. So we get granular and favor sectors like healthcare within developed market stocks."

Companies in focus

-- Jamie Chisholm contributed.

-Vivien Lou Chen

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07-10-23 1632ET

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