• January 26, 2023

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Topline

The stock market moved slightly higher on Wednesday morning thanks to a boost from Big Tech stocks like Microsoft and Alphabet, which both rallied despite missing earnings estimates, while investors look ahead to an upcoming rate hike decision from the Federal Reserve this afternoon.

Key Facts

Stocks attempted to recoup losses from the previous session: The Dow Jones Industrial Average rose 0.5%, over 100 points, while the S&P 500 gained 1% and the tech-heavy Nasdaq Composite 1.8%.

Investors are awaiting the latest interest rate decision from the Federal Reserve, with the central bank widely expected to hike rates by 75 basis points again, similar to its last meeting in June.

Shares of tech giants Microsoft and Alphabet both rose nearly 4% despite quarterly earnings and revenue coming in below expectations late on Tuesday, with analysts remaining optimistic about the long-term growth outlook for both companies.

Investors also continued to assess the latest batch of second quarter earnings: Out of more than 150 companies in the S&P 500 that have reported so far, roughly 70% have beaten analyst expectations, according to FactSet data.

Shares of Boeing rallied slightly despite lackluster earnings results, while the likes of Enphase Energy and Chipotle both reported strong results and saw their stocks rally 10% and 8%, respectively.

Retail stocks, which tanked on Tuesday following a gloomy profit warning from Walmart, rebounded slightly on Wednesday, with the SPDR S&P Retail ETF, which tracks the sector, gaining nearly 1%.

What To Watch For:

Markets are widely anticipating another 75 basis point rate increase from the Federal Reserve. The central bank hiked rates by the same amount at its meeting last month—the biggest rate hike in 28 years—in an attempt to combat high inflation. The Fed has said it is prepared to get even more aggressive in tightening monetary policy, last month warning there is a “significant risk” that high consumer prices could become “entrenched” for longer. Investors will also be watching the latest U.S. economic data, with second-quarter GDP due on Thursday. Despite negative growth in the first quarter, analysts still expect GDP to rise slightly, which would mean the U.S. economy avoids a technical recession.

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Crucial Quote:

“We’re not looking for a ton of fireworks” out of the Fed meeting, as a 75 basis point hike is “widely expected and should be a non-event,” predicts Vital Knowledge founder Adam Crisafulli. Amid signs that inflation could soon moderate, “the Fed is getting very close to a dovish pivot,” he predicts, though it won’t happen until later this year.

Surprising Fact:

“One of the primary reasons stocks have put up miserable performance numbers this year stems from the tighter monetary policy of the Federal Reserve… for that reason, we found it ironic that on all three days the FOMC has hiked rates this year, stocks rallied,” according to Bespoke Investment Group. “The S&P 500 is down 17.7% this year, but if you had only invested in the market on days when the FOMC hiked rates, you would be looking at a YTD gain of 6.8% in just three days.”

Further Reading:

S&P 500 Falls Over 1% After Walmart’s Profit Warning, Consumer Confidence Tumbles (Forbes)

Walmart Shares Plunge Nearly 10% After Company Warns Of Profit Slowdown Due To Inflation (Forbes)

IMF Warns Of ‘Gloomy Outlook’ For Global Economy, Slashing Growth Estimates (Forbes)

New China Covid-19 Lockdowns Would Threaten U.S. Economic Recovery (Just Ask Tesla) (Forbes)

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