Investors digested quarterly financial results from a slate of major banks with US corporate earnings on track for their strongest quarter in more than two years. Higher interest rates have put earnings in the banking sector under pressure, but earnings reported over the last week showed that trading and investment banking activity buoyed profits and revenues in the second quarter. Looking across the S&P 500, blended earnings growth—a combination of reported and projected results—for the quarter stood at 9.3% year-over-year as of July 12, driven by technology, health care and financial companies, according to FactSet. At 9.3%, it would be the highest level of earnings growth for the S&P 500 since the first quarter of 2022. Revenues were on pace to rise 4.8%, based on FactSet's blended forecasts.

Market participants also continue to gauge when the Federal Reserve might be ready to cut interest rates following encouraging readings on inflation of late. In a speech on Wednesday, Fed Governor Christopher Waller said policymakers were "getting closer" to delivering a cut but added that a "bit more evidence" will be needed. Expectations for a September rate cut had investors focused on small caps this week with the Russell 2000 index jumping to levels not seen since November 2021, reflecting optimism that lower rates will buttress the broader economy. In its quarterly outlook, PGIM Quantitative Solutions noted that while first-quarter earnings were skewed by the Magnificent Seven's momentum, profit growth for the rest of the market is expected to improve.