Markets spent the second half of July focused on interest rates and Federal Reserve (Fed) policy. The strength of the U.S. Economy also took center stage as companies began releasing their second-quarter earnings reports.
Last week the Fed concluded its July meeting and once again took action to increase interest rates by 0.25%. The rate hike was widely anticipated and markets were mostly unchanged after the announcement. The real question is how the Fed will proceed moving forward. Chairman Jerome Powell’s post-meeting comments gave few hints as he acknowledged recent progress on inflation and labor markets while underscoring the need to see continued evidence of cooling prices and softening wage growth. Much emphasis will be placed on the July and August Consumer Price Index (CPI) reports, which will likely determine whether further rate hikes are necessary.1
Data suggests that the U.S. Economy remains strong. In fact, Gross Domestic Product (GDP) picked up momentum in the second quarter to a rate of 2.4%, significantly above both economist expectations and the first quarter’s rate of 2.0%.2 A growing economy suggests that the risk of a recession, at least in 2023, is becoming less likely.
This Friday the U.S. Bureau of Labor Statistics will release its monthly report on the labor market. June’s report showed the smallest number of new jobs created since December 2020, surprising most economists. A cooling labor market would ease pressure on wage growth, which in turn should help continue to tame inflation.
Reviewing returns for the second half of July, the markets all continued positive momentum. As of market close on July 31st, the Dow jumped 1,051 points (3.04%), the S&P 500 rose 84 points (1.85%) and the NASDAQ Composite Index (NASDAQ) was up 232 points (1.65%).
1 www.jpmorgan.com “Will the Federal Reserve hike rates again?” July 31, 2023
2 www.jhinvestments.com “Weekly Market Recap; Week ended July 28” July 31, 2023
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