Closing Stock Market SummaryOn the heels of the earnings reports from Alphabet (GOOG 113.60, +8.16, +7.7%) and Microsoft (MSFT 268.74, +16.84, +6.7%), the stock market opened on a high note. The main indices stuck to a fairly narrow range as market participants waited for the FOMC decision. There was some whipsaw action immediately after the rate hike announcement but the market moved sharply higher during Chairman Powell's subsequent press conference. Each of the indices closed near session highs.
The strength in the early going was thanks to better-than-feared results and/or guidance from Alphabet and Microsoft, which was good enough for a market that seemingly priced in worse considerations during the selloff in the first half of the year.
The real upside momentum came after the FOMC announced its decision. The 75 basis point rate hike was as expected and the vote was unanimous. However, this was not the catalyst that sent the market on a sharp incline.
After listening to Fed Chair Powell's press conference, the market thinks that the pace of the Fed's rate increases may soon start to slow down given that the economy is slowing, too. Fed Chair Powell did not rule out another 75 basis point increase (or larger) at the September meeting, but he said the data will dictate that decision. Importantly for the market, he also said that, with the frontloading of rate hikes, it intuitively makes sense that slowing the pace of rate increases would be appropriate.
The stock market seems to have latched on to the latter admission as the post-FOMC rally catalyst, notwithstanding the added acknowledgment that it will be quite challenging for the Fed to achieve a soft landing and that the task has gotten even more challenging in recent months.
As was the case before the press conference, the mega caps led the upside moves. The Vanguard Mega Cap Growth ETF (MGK) closed up 4.3% versus a 2.6% gain in the S&P 500 and a 1.9% gain in the Invesco S&P 500 Equal Weight ETF (RSP).
The late-session rally left all 11 S&P 500 sectors in positive territory. Gains ranged from 0.1% (utilities) to 5.1% (communication services).
As for the Treasury market, there was very little immediate reaction to the Fed's 75-bps rate hike announcement, but most tenors rallied to fresh highs during Fed Chairman Powell's press conference. The 2-yr note yield fell four basis points to 3.00% while the 10-yr note yield fell five basis points to 2.73%.
Also, energy complex futures made big moves today. WTI crude oil futures rose 2.8% to $97.54/bbl. Natural gas futures fell 2.0% to $8.57/mmbtu. Unleaded gasoline futures rose 2.7% to $3.19/gal.
Ahead of Thursday's open, Altria (MO), American Tower (AMT), Comcast (CMCSA), Harley-Davidson (HOG), Hershey Foods (HSY), Honeywell (HON), Mastercard (MA), Merck (MRK), Northrop Grumman (NOC), Pfizer (PFE), Royal Caribbean (RCL), Southwest Air (LUV), Stanley Black & Decker (SWK), and STMicroelectronics (STM) headline the earnings reports.
Thursday's economic data is limited to:
- 8:30 ET: Advance Q2 GDP (consensus 0.5%; prior -1.6%), advance Q2 GDP Deflator ( consensus 7.1%; prior 8.2%), weekly Initial Claims ( consensus 253,000; prior 251,000), and Continuing Claims (prior 1.384 mln)
- 10:30 ET: Weekly natural gas inventories (prior +32 bcf)
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -1.8%; Prior -6.3%
- June Durable Orders 1.9% ( consensus -0.5%); Prior was revised to 0.8% from 0.7%; June Durable Orders, Ex-Transportation 0.3% (B consensus 0.3%); Prior was revised to 0.5% from 0.7%
- The key takeaway from the report is that business spending remained on a positive trajectory. New orders for nondefense capital goods, excluding aircraft, increased 0.5% for the second consecutive month.
- June Adv. Retail Inventories 2.0%; Prior was revised to 1.6% from 1.1%
- June Adv. Wholesale Inventories 1.9%; Prior was revised to 1.9% from 2.0%
- June Adv. Intl. Trade in Goods -$98.2 bln; Prior was revised to -$104.0 bln from -$104.3 bln
- June Pending Home Sales -8.6% (consensus -1.5%); Prior was revised to 0.4% from 0.7%
- Crude oil inventories had a draw of 4.52 mln barrels
- Prior week showed a draw of 446K barrels
- Gasoline inventories had a draw of 3.30 mln barrels
- Prior week showed a build of 3.50 mln barrels
- Dow Jones Industrial Average: -11.4% YTD
- S&P 400: -13.9% YTD
- S&P 500: -15.6% YTD
- Russell 2000: -17.6% YTD
- Nasdaq Composite: -23.1% YTD