Hello, this is Claire Ellerhorst, Senior Portfolio Manager at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices rose last week amid second quarter earnings season, encouraging economic releases and a rate hike from the Federal Reserve. The S&P 500 Index rose one percent to cap its third straight weekly gain, while the Nasdaq Composite rose two percent and the Dow Jones Industrial Average rose seven tenths of one percent in total return. U.S. Treasury yields rose, oil was higher, and the U.S. dollar strengthened versus major peers for the week.
The Federal Open Market Committee (FOMC) voted to increase the Fed Funds rate by 25 basis points on Wednesday, after pausing in June, leaving the target range at 5.25% to 5.50%. Persistent core inflation data and a still tight labor market resulted in the FOMC’s decision to raise interest rates, despite witnessing overall inflation which continues to moderate. The statement from the Fed was interpreted as mildly dovish and market participants were encouraged by Fed Chair Powell’s comment that it makes sense to slow down tightening. Powell said the central bank will make decisions on a "meeting-by-meeting" basis based on data.
The first reading on second quarter U.S. economic growth came in better than expected on Thursday. Gross domestic product (GDP) rose at a 2.4% annualized rate last quarter, faster than the pace in the first three months of the year and above economists’ estimates. Consumer spending, which accounts for about two-thirds of GDP, slowed to a 1.6% annualized rate while business investment accelerated. Inflation showed further signs of cooling according to the Fed’s preferred measure: core personal consumption expenditures (PCE). Core PCE rose 4.1% year-over-year in June, about in line with economists’ estimates and a slowdown from May’s 4.6% pace. Headline PCE rose 3.0% year-over-year.
More than half of S&P 500 companies have reported second quarter earnings results as of Friday, of which 80% have reported earnings per share that beat expectations. That is above the 5-year average of 77% and above the 10-year average of 73%, according to data from FactSet.
In the week ahead, employment data comes into focus, with the Job Openings and Labor Turnover Survey release for June on Tuesday and the Bureau of Labor Statistic’s employment report for July on Friday. Economists are expecting another healthy increase in payrolls and a modest slowdown in wage growth. Earnings season continues, with over 160 S&P 500 companies scheduled to report.
As always, we’ll be watching and reporting back to you. Thank you.