Equities performed well in a week with lots of moving parts, ranging from the Federal Reserve’s (Fed) policy rate decision to a bevy of second quarter earnings releases. The Dow Jones matched its longest winning streak on record, and the S&P 500 notched its third-straight week in the green. In the week’s main event, the Fed’s decision to hike rates 0.25% was no surprise as Chair Powell stressed the need to remain data-dependent.
While some have worried the Fed has raised rates too aggressively, key economic releases last week bolstered the soft-landing narrative. U.S. GDP accelerated in the second quarter at a noticeably quicker rate than expected. Meanwhile, the Fed’s preferred inflation gauge, Personal Consumption Expenditures (PCE), showed prices rose last month at the slowest rate in nearly two years. The Fed will hope to see these trends continue ahead of their next policy meeting in September.
While economic data was encouraging, earnings reports were less upbeat. Earnings are on track to fall -7.3% in the second quarter, which would mark the third-straight quarterly decline and the steepest drop since Q2 2020. However, companies are faring much better relative to expectations. With roughly half of the S&P 500 having reported second quarter results, 80% have beaten earnings estimates, which is ahead of historical averages.
A look back
- Emerging markets soared, up over 2.8%, while U.S. stocks rose about 1%. The communication services sector enjoyed outsized gains to pace the S&P 500.
- U.S. Treasury yields rose, and the 10-year yield broke above 4% before closing the week around 3.97%. The curve inversions eased.
- The Fed increased rates by the expected 0.25%. Meanwhile, U.S. GDP rose at an annualized rate of 2.4% in the second quarter, much faster than anticipated.
A look ahead
- Second quarter earnings season rolls on with about a third of the S&P 500 set to report.
- Labor data will be the economic highlight. Many have identified the labor market as the key to whether the economy will achieve a soft landing or endure a recession.
- Economic releases: S&P Global U.S. & ISM Manufacturing & Services, JOLTS Job Openings, Durable Goods Orders, ADP Employment Change, Nonfarm Payrolls, and the Unemployment Rate.
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