Stocks Rise After Widely Expected Fed Decision…..

U.S. equities finished higher as the Street appeared to react positively to the Fed’s decision to up the target for it benchmark interest rate, a move that was widely expected. As Q2 earnings season heats up, Dow members Microsoft and Boeing, along with Google parent Alphabet all gained ground even as their results came in below estimates. However, Texas Instruments, Chipotle Mexican Grill, and Dow component Visa all reported quarterly results that exceeded forecasts. The economic calendar had some positive data points, with preliminary durable goods orders rising more than expected, the advance goods trade deficit narrowing more than projected, and wholesale inventories topping forecasts. However, mortgage applications fell for a fourth-straight week, and pending home sales fell by the largest amount since the start of the pandemic. Treasuries finished mixed, pairing gains that came following the Fed’s decision, and the U.S. dollar turned to the downside. Crude oil prices traded higher, and gold also reversed course to finish solidly to the upside. Europe was mostly higher despite some lackluster earnings results in the region, while markets in Asia finished mixed.

The Dow Jones Industrial Average increased 436 points (1.4%) to 32,198, the S&P 500 Index rallied 103 points (2.6%) to 4,024, and the Nasdaq Composite jumped 470 points (4.1%) to 12,032. In moderate volume, 4.1 billion shares of NYSE-listed stocks were traded, and 4.5 billion shares changed hands on the Nasdaq. WTI crude oil rose $2.28 to $97.26 per barrel. Elsewhere, the gold spot price gained $14.30 to $1,732.00 per ounce, while the Dollar Index was down 0.7% to 106.40.

Fed opts for 75 bps, economic calendar robust…..

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, and for a second-consecutive meeting opted to raise the target for the fed funds rate by 75 basis points (bps), bringing the benchmark rate to a range of 2.25% to 2.50%. In its statement that accompanied the decision, the Committee said that while the jobs market remains robust and the unemployment rate has remained low, “Recent indicators of spending and production have softened,” and that “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.” The panel also continued to cite the ongoing war in Ukraine for creating additional pressure on inflation and weighing on global economic activity. Regarding its balance sheet, the Fed said it will maintain its plans of reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities that it released in May. The decision was unanimous at this meeting, after Kansas City Fed President Esther George was the lone dissenter at the June gathering, who at that time preferred a smaller 50-bp increase.

No updated economic projections were provided at this meeting. Shortly after the announcement in his customary press conference, Chairman Jerome Powell said that “the current picture is plain to see: The labor market is extremely tight, and inflation is much too high.” Powell also stated that he thinks it is necessary to have growth slow down, and it probably will grow below its long-run trend for a period of time, noting “We actually think we need a period of growth below potential in order to create some slack.” Get more insight on the Fed’s decision from Schwab’s Kathy Jones later today on our Insights & Education page.

In other economic news, preliminary durable goods orders rose 1.9% month-over-month (m/m) during June, compared to the Bloomberg consensus estimate of a 0.4% decrease and versus May’s unrevised 0.8% increase. Ex-transportation, orders were up 0.3% m/m, topping forecasts calling for a 0.2% advance and compared to May’s downwardly-adjusted 0.5% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, were higher by 0.5%, compared to projections of a 0.2% rise, and versus the prior month’s negatively-adjusted 0.5% gain.

The MBA Mortgage Application Index decreased 1.8% last week, following the prior week’s decline of 6.3%. The index was down for a fourth-straight week as a 3.7% drop in the Refinance Index was met with a 0.8% dip for the Purchase Index. The decline came even as the average 30-year mortgage rate decreased 8 basis points (bps) to 5.74% rate, but is up 273 bps versus a year ago.

In other housing news, Pending home sales fell much more than expected, dropping by 8.6% m/m in June, versus estimates of a 1.0% decline and following May’s negatively-revised 0.4% decrease. Sales tumbled 19.8% y/y on the heels of May’s negatively-adjusted 12.3% fall. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales, and posted the largest m/m decrease since April 2020 as housing affordability drops.

Preliminary wholesale inventories grew 1.9% m/m for June, compared to expectations of a 1.5% gain, and versus May’s favorably-revised 1.9% increase.

Treasuries finished mixed, and the inversion of the 2-year and 10-year notes remained intact, as the markets continue to grapple with how aggressive the Fed will be moving forward and what the ultimate impact will be on the economy.

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