Closing Stock Market SummaryToday's trade was mixed as market participants reacted to a heavy batch of earnings, the latest policy move by the FOMC, and Fed Chair Powell's subsequent commentary.
The FOMC voted unanimously to raise the target range for the fed funds rate by 25 basis points to 5.25-5.50%, as expected. The policy directive also upgraded the description of economic activity to expanding at a moderate pace from continuing to expand at a modest pace in the June directive.
The market reaction was relatively muted as investors looked ahead to Fed Chair Powell's press conference, which induced some whipsaw price action for the major indices.
Mr. Powell acknowledged that inflation has moderated somewhat since the middle of last year. Nonetheless, the process of getting inflation back down to two percent has a long way to go. The Fed currently doesn't see inflation getting down to two percent until 2025 or so. The Fed will continue to make its decisions meeting by meeting. The idea, though, that the Fed would keep hiking until inflation gets to two percent would be a prescription of going way past the target and that's clearly not the appropriate way to think about it.
By and large, the Fed Chair was non-committal about the next move. Ultimately, the major indices closed near where they were trading before the policy directive was released at 2:00 p.m. ET.
Expectations for a second rate hike at any of the meetings before the end of the year were largely unchanged. According to the CME FedWatch Tool, probability of a second rate hike at any of the remaining FOMC meetings this year remains under 40%.
On the earnings front, Microsoft (MSFT 337.77, -13.21, -3.8%) and Alphabet (GOOG 129.66, +6.87, +5.6%) were among the more influential movers, garnering mixed reactions from investors, along with Visa (V 237.10, -1.59, -0.7%), Boeing (BA 232.80, +18.68, +8.7%), Coca-Cola (KO 63.05, +0.80, +1.3%), and AT&T (T 14.89, +0.09, +0.6%).
Microsoft reported better-than-expected earnings and revenue, but logged a decent declined due to some profit-taking activity after guiding fiscal Q1 revenues slightly below the consensus estimate. Alphabet and Boeing, meanwhile, offered some offsetting support.
The broader market held up fairly well today as evidenced by the 0.2% gain in the Invesco S&P 500 Equal Weight ETF (RSP) while the market-cap weighted S&P 500 closed flat.
Regional bank stocks were a pocket of strength after the news that PacWest Bancorp (PACW 9.76, +2.07, +26.9%) and Banc of California (BANC 14.71, +0.09, +0.6%) are merging in an all-stock transaction. The SPDR S&P Regional Banking ETF (KRE) rose 4.7%.
Strength from its regional bank components helped the Russell 2000 to outperform its peers, gaining 0.7%.
The S&P 500 communication services sector (+2.7%) was the top performer by a wide margin, thanks to Alphabet, while the information technology sector (-1.3%) finished in last place, weighed down by Microsoft.
- Nasdaq Composite: +35.0% YTD
- S&P 500: +18.9% YTD
- Russell 2000: +12.4% YTD
- S&P Midcap 400: +12.2% YTD
- Dow Jones Industrial Average: +7.2% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index fell 1.8% with purchase applications dropping 3.0% and refinance applications remaining flat from last week.
- New home sales decreased 2.5% month-over-month in June to a seasonally adjusted annual rate of 697,000 units (consensus 722,000) from a downwardly revised 715,000 (from 763,000) in May. On a year-over-year basis, new home sales were up 23.8%.
- The key takeaway from the report is that new home sales activity, which is measured on signed contracts, was crimped in June by rising mortgage rates that created added affordability pressures.
- The weekly EIA crude oil inventories showed a draw of 600,000 barrels after last week's draw of 708,000 barrels.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Advance Q2 GDP ( consensus 1.6%; prior 2.0%), advance Q2 GDP Deflator ( consensus 3.0%; prior 4.1%), Weekly Initial Claims (consensus 233,000; prior 228,000), Continuing Claims (prior 1.754 mln), June Durable Orders (consensus 1.0%; prior 1.7%), Durable Orders ex-transportation (consensus 0.2%; prior 0.6%), June advance goods trade deficit (-$91.1 bln), June advance Retail Inventories (prior 0.8%), and June advance Wholesale Inventories (prior -0.1%)
- 10:00 ET: June Pending Home Sales (consensus 0.3%; prior -2.7%)
- 10:30 ET: Weekly natural gas inventories (prior +41 bcf)