Mid-Week Market Minute 07.27.22

Market Updates

Stocks were mostly higher this week as investors digested several key earnings reports in conjunction with the Federal Reserve’s policy decision. As anticipated, the Federal Reserve enacted its second consecutive 0.75% interest-rate increase on Wednesday.  With the benchmark overnight borrowing rate now up to a range of 2.25%-2.5%, hikes in June and July represent the largest consecutive moves since the Fed began to rely on the overnight funds rate as a primary monetary policy tool in the early 1990s. While the funds rate most directly impacts the cost of short-term loans between banks, it also impacts several consumer products such as adjustable-rate mortgages and auto loans. Markets took the change in stride, and investors will continue to keep a close watch on the central bank’s ability to tame inflation while steering clear of a recession.

It was another busy week on the earnings front, with approximately one-third of S&P 500 slated to report second-quarter results. Despite sluggish growth, shares of tech giants Alphabet (Google’s parent company) and Microsoft (MSFT) rallied this week on relatively upbeat forward guidance. Meanwhile, shares of Walmart fell sharply after the big-box chain cut profit forecasts as inflation continues to weigh on consumers. On the data front, an update from the Consumer Conference Board showed consumer confidence fell for the third consecutive month. In housing, mortgage demand declined again this week with MBA mortgage applications falling by 1.8%. Separately, durable goods orders unexpectedly jumped 1.9% in June, significantly better than consensus forecast.

Rounding out the week, investors will get the first estimate of second-quarter GDP on Thursday, where economists are expecting to see annualized GDP growth at 0.5% – narrowly avoiding a technical recession. In addition to the GDP report, the markets will get a glimpse at the Fed’s preferred measure of inflation. The PCE Price index is expected to show prices increased by 6.7% year-over-year in June, modestly higher than May’s reading of 6.35%.

Source: GSAM, CNBC, JPMorgan

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