(Bloomberg) — The stock rally gained traction, defying calls from skeptics in the aftermath of the Federal Reserve decision, with traders paring bets on rate hikes as the drumbeat of recession grew louder amid an ugly economic print.
Equities rose to a seven-week high, led by defensive groups, which are often sought after during challenging times. Tech underperformed before Apple Inc. and Amazon.com Inc.’s results. US yields sank, while swaps referencing policy meeting dates showed bets the fed funds rate will peak around 3.25% before the end of 2022, less than 100 basis points above its current level.
The US economy is losing momentum heading into the back half of the year, highlighted by the government’s latest report card that showed weaker consumer spending and declines in business and residential investment. The data was released a day after the central bank raised rates by 75 basis points and Chair Jerome Powell said a similar move was possible again — rejecting speculation the US is in recession.
“Bad news is becoming good news,” said Michael Arone, chief investment strategist at State Street Global Advisors. “When the economy is slowing, inflation measures will likely fall. That will bring the end of the tightening cycle nearer and markets will like that.”
For LPL Financial’s Jeffrey Roach, the Fed will likely interpret the drop in real growth as confirmation to slow down the pace of tightening. “Front-loading rate hikes eventually mean smaller hikes in the near future,” he added. FHN Financial’s Chris Low said that based on Powell’s comments Wednesday, officials will not stop hiking just because the economy is shrinking.
“They need to see real progress against inflation before they stop raising rates,” Low noted. “With that in mind, this recession will get deeper before the economy starts to heal.”
Read: Yellen Says US Economy Not Seeing Recession Conditions Now
Corporate Highlights:
- Honeywell International Inc.’s profit topped estimates as a rebound in air travel and oil-and-gas investment helped spur sales.
- Hertz Global Holdings Inc. soared as the rental-car giant’s earnings beat estimates with revenue jumping on higher prices and rebound in travel.
- Harley-Davidson Inc. gained as profit and revenue beat estimates, a sign that a turnaround plan is helping the motorcycle maker overcome supply-chain headaches.
- Comcast Corp. sank after its prized internet business added no new customers last quarter, its worst performance in decades.
- Southwest Airlines Co. said it’s facing high costs and delays in aircraft deliveries from Boeing Co., tarnishing a quarter in which the carrier topped Wall Street’s profit expectations.
Here are some key events to watch this week:
- Euro-area CPI, Friday
- US PCE deflator, personal income, University of Michigan consumer sentiment, Friday
Musk, Tesla and Twitter are this week’s theme of the MLIV Pulse survey. Also share your views on the S&P 500’s biggest stocks. Click here to get involved anonymously.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 1.2% as of 2:49 p.m. New York time
- The Nasdaq 100 rose 0.8%
- The Dow Jones Industrial Average rose 1.1%
- The MSCI World index rose 1.2%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro fell 0.3% to $1.0168
- The British pound fell 0.2% to $1.2136
- The Japanese yen rose 1.5% to 134.46 per dollar
Bonds
- The yield on 10-year Treasuries declined nine basis points to 2.70%
- Germany’s 10-year yield declined 12 basis points to 0.83%
- Britain’s 10-year yield declined nine basis points to 1.87%
Commodities
- West Texas Intermediate crude fell 0.5% to $96.75 a barrel
- Gold futures rose 1.7% to $1,767.80 an ounce
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