The Fed raised its benchmark rate by 75 basis points for a second straight month on Wednesday. Stocks rallied during Powell’s subsequent news conference, during which he said the central bank could decide on “another unusually large” hike at the next policy meeting in September, depending on the economic data. Powell also pushed back on the idea that the United States is in a recession and said the Fed will slow the pace of interest rate increases at some point.
Pending home sales fell in June by the most since April 2020, reflecting weakness in one of the most interest-rate-sensitive sectors. On Thursday, data showed that the U.S. gross domestic product shrank for a second straight quarter, falling at a 0.9 percent annualized rate. The report illustrated how inflation and tighter Fed monetary policy have undercut consumers’ purchasing power and dialed back demand.
For David Kelly, chief global strategist at JPMorgan Asset Management, the GDP news will “reinforce pessimism” about the state of the economy and the outlook for corporate profits. Still, he said, “a small silver lining for markets is that an avowedly data-dependent Federal Reserve should see, in this weakness, a reason to be less aggressive in hiking rates in the rest of 2022.”
Corporate earnings reports from the big tech companies during the week helped boost stocks across the board. Amazon reported second-quarter revenue that beat estimates and predicted sales could rise 17 percent in the current quarter, while Apple topped analysts’ revenue expectations thanks in part to higher iPhone sales.
Earnings season rolls on with Airbnb, Starbucks, Uber, Marriott and CVS Health due to report quarterly results this coming week.
Friday’s payrolls report for July is expected to show a gain of 250,000 jobs and the unemployment rate remaining at 3.6 percent, according to a Bloomberg survey of economists.
The Treasury will sell 13- and 26-week bills Monday. They yielded 2.464 percent and 2.890 percent in when-issued trading, respectively. It will auction four- and eight-week bills Thursday.