U.S. and International Equities
U.S. Markets Finish Higher
The major U.S. market indexes finished higher this week as growth and value names witnessed solid gains. The latest batch of second quarter earnings results were not as weak as some analysts had feared. Earnings results were highlighted by Amazon and Apple’s favorable reports. Signs of cooling inflation and easing fears of Federal Reserve overtightening likely helped entice some equity buyers to come back into the markets.
Developed international stocks had a positive week as Eurozone Q2 preliminary GDP readings surprised to the upside. Nevertheless, July Eurozone inflation came in higher than what economists expected, reaching an all-new record high.
Growth stocks, as seen in the returns of the consumer discretionary and information technology sectors had a solid week. That being said, energy was the dominant sector on the back of West Texas Intermediate crude oil prices rebounding along with European energy supply challenges caused by the Eastern European conflict.
Fixed Income Higher
The Bloomberg Aggregate Bond Index finished higher this week as the 10-year U.S Treasury bond yield dropped to below 2.65%. Bond investors are pricing in slower economic growth and a belief that inflation pressures will moderate. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, gained ground following a solid week for equities.
Oil prices rebounded while natural gas has now seen four straight weeks of gains. Energy supply challenges in Europe will continue to be a factor in energy prices as future Russian supplies appear to be in question. The major metals, gold, silver, and copper, had a solid week amid a tough year. Gold and silver both benefitted from Federal Reserve Chairman Jerome Powell’s comment on Wednesday that the next interest rate hike in September would depend on the progress of upcoming U.S. economic data.
Economic Weekly Roundup
The Federal Reserve (Fed) ended its two-day Federal Open Market Committee (FOMC) meeting Wednesday with the outcome broadly in line with market expectations. The Committee raised short-term interest rates by 75 basis points (0.75%) as expected to take the Fed Funds rate to 2.5% (upper bound). The 2.5% level is, by the Fed’s estimate, neutral; that is the level where monetary policy is neither restrictive nor accommodative. However, Chairman Jerome Powell seemingly indicated a willingness to slow the pace of rate hikes citing 75 basis point hikes as “unusually large”.
Real GDP in Q2 fell an annualized -0.9% from last quarter as real consumer spending rose 1%, driven by strong services spending. Although the economy shrank for two consecutive quarters, we are not in a recession because consumers, the largest portion of the economy, was fairly stable the first half of this year.
Weekly Employment Report
Initial claims for unemployment insurance for the latest week came in lower than the prior week but missed economists’ expectations. The readings still remain historically low despite the recent uptick. Continuing claims, which still remain near record lows, declined from the prior week and came in lower than economists’ consensus estimates. The data still continues to illustrate a tight labor market as economic growth slows and financial conditions tighten.
The following economic data and potentially market-moving events are slated for the week ahead:
Monday: ISM Manufacturing (July), Markit PMI Manufacturing (July), construction spending (June), BEA automobile sales (July)
Tuesday: JOLTS Job Openings (June)
Wednesday: durable and factory orders (June), ISM Services (July), Markit PMI Services (July), PMI composite (July)
Thursday: Weekly initial and continuing unemployment claims, trade balance (June)
Friday: consumer credit (June), private nonfarm payrolls (July), manufacturing payrolls (July), workweek statistics (July), July unemployment
Next week, over 150 companies report their Q2 earning results
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