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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 equities gave back a portion of the previous week’s gains, as uncertainty over the incoming administration’s policies appeared to continue driving the so-called Trump Trade. Financials and energy shares continue to benefit from hopes for deregulation and merger approvals. Likewise, the price of Bitcoin had surged by nearly a third since the eve of the election, as investors anticipated looser regulation of digital currencies. Conversely, health care shares fell sharply following news that Robert F. Kennedy, Jr., would be Trump’s nominee to head the Health and Human Services Department (HHS). On the macro side, yoy US headline inflation rose for the 1st time since March, from 2.4% to 2.6%. PPI data came in above expectations.