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Equities shrug off The Fed & downbeat GDP report
US stocks posted solid gains despite another 75-basis-point rate hike from the Fed and news that the US economy contracted at a 0.9% annual rate in the second quarter. It seems that “bad news is good news” again as investors have been decreasing rate hikes expectations which leads to Growth stocks outperforming value stocks again. With 50% of the companies in the S&P 500 Index reporting earnings during the week, investors also focused on quarterly numbers from tech giants. Amazon.com and Alphabet jumped on Wednesday after posting better-than-feared earnings results. Sparked by Powell’s dovish post-FOMC meeting comments, the U.S. Treasury yield curve steepened, with intermediate- and short-term yields decreasing and long-maturity rates holding generally steady. Confirmation that GDP contracted over the first two quarters of the year also fueled demand for short- and intermediate-term Treasuries. High yield bond market sentiment improved after the Fed meeting. Shares in Europe gained ground, boosted by data showing that the eurozone economy expanded at a higher-than-expected rate of 0.7% in the second quarter. Markets largely shrugged off concerns about rising natural gas prices due to reduced Russian supply. Meanwhile, an early estimate of euro area inflation came in above expectations, hitting 8.9% in July, driven by food and energy prices. Cryptocurrencies soared while the dollar weakened over the week.
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US stocks recorded modest gains over the shortened trading week (markets were closed on Wednesday), with the S&P 500 hitting 5,500 intraday for the 1st time ever. The week also saw modest signs of rotation in the market, with value stocks outperforming growth as Nvidia suffered its first down-week in two months. Friday was a so-called triple-witching day, with roughly USD 5.5 trillion in options related to indexes, stocks and ETFs expiring. The start of the week brought some evidence of US economy easing with retail sales signalling less discretionary spending. But data released later in the week suggested that the economy was stronger than indicated by retail sales.