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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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Most US equities indexes ended the week lower, although the tech-heavy Nasdaq Composite advanced modestly and cleared the 20,000 mark for the first time. The Russell 2000 Index recorded a second consecutive week of underperformance against the S&P 500 Index. Growth stocks posted a third consecutive week of outperformance versus value, thanks in part to gains in shares of Tesla (12%) and Alphabet (8.4%). On the macro-economic side, stagflation fears started to rise once again. Indeed, YoY CPI and PPI both accelerated. Meanwhile overall macro surprises disappointed for the fourth week in a row: on Thursday, the Labor Department reported a surprise jump in weekly initial jobless claims to a two-month high of 242,000.