Fed Turns The Heat Up, Dow Rallies For 13th Day


Cody Huelster

Jul 26th 2023  .  5 min read

Dawn of a New Trading Day

After yesterday’s anticipatory calm, today saw equity markets swing into action in a mixed fashion. The morning bell witnessed the Federal Reserve’s decision on future hikes with expectations in tune with the prevalent market narratives. As the dawn faded into the day, the Treasury yields and the dollar dipped, while Dow surged for the 13th consecutive day, its most extended winning stretch since 1987.

Marching Sectors and Warring Stocks

In the face of today’s market activities, an intriguing story of sector strengths and weaknesses unfolds. Communication Services, Industrials, Financials, Real Estate, and Utilities stood their ground, showcasing commendable robustness. These strong performers have risen to the occasion, bolstering their positions in today’s economic environment. Conversely, Information Technology, Materials, Consumer Discretionary, and Energy presented a less rosy picture, buckling under the pressure of various market forces.

On the stock front, the landscape is just as dynamic. Alphabet (GOOG) became the star of the show, rallying with an impressive 5.6% gain, a clear testament to the tech giant’s resilience in the face of challenging market conditions. Alphabet’s gains were, however, counterbalanced by Microsoft (MSFT), which saw a 3.7% decline. A cocktail of profit-taking activity and a slight miss on the future revenue outlook seemed to rattle the tech behemoth’s stronghold.

A noteworthy highlight from today’s stock stories includes the regional bank stocks, which stepped into the limelight, catalyzed by the news of an all-stock merger between PacWest (PACW) and Banc of California (BANC). This development has stimulated speculations about further mergers within the space, making it a potential hotspot for future market activities.

Earnings Extravaganza: Tech Titans Tussle and Visa Views

The earnings stage today saw fierce tussles among tech titans, particularly Alphabet and Microsoft. Both heavyweights exceeded estimates, yet their post-earnings narratives diverged dramatically. Alphabet’s robust earnings, driven by a revival in advertising demand, had the stock soaring, while Microsoft experienced a sell-off, courtesy of a more subdued sales growth forecast and potential slowdown in its cloud-computing business.

Stepping out from the tech arena, Visa (V) reported a slight drop in U.S.-payments volume growth. While moderating inflation was a contributing factor, the company reassured stakeholders that consumer spending has held steady since March. According to Visa, their data points towards unchanged consumer behavior, signifying resilience within the consumer segment in the face of economic pressures.

An Economic Encore: Housing Hiccup and Monetary Maneuvers

Notably in the economic sphere, the Federal Reserve, under Chair Powell’s leadership, announced a 0.25% rate hike, pushing the policy rate to a high not seen since 2001. Despite this, the Federal Open Market Committee (FOMC) is keeping their options open for an additional rate hike, as it keenly observes the cooling inflation across a number of categories and the persistence of downside risks to growth.

This cautious, data-dependent approach of the FOMC has led to muted reactions in the marketplace. Nonetheless, with inflation predicted to return to the 2% target only by 2025, all eyes will be on the Fed’s upcoming decisions and its potential implications on future market activities.

In housing news, new home sales fell by 2.5% in June, resulting in an annual rate of 697,000 units, lower than the consensus estimate of 722,000. Rising mortgage rates have been fingered as the culprit behind this dip, underlining affordability issues that are starting to impact the real estate sector. While this sector had a strong showing today, these headwinds could be a cause for concern going forward.

Market Indices Snapshot: A Day of Green

Today’s close of trading presented a rewarding landscape for investors as all four major US stock market indices – the Dow Jones Industrial Average (DJIA), Nasdaq Composite, S&P 500, and Dow Jones Total Stock Market Index – ended the day in the green.

The Dow Jones Industrial Average (DJIA) finished at 35,418.45, witnessing a significant rise of 190.76 points. This gain comes after a series of swings, reflecting the market’s ongoing evaluation of various factors such as corporate earnings reports, economic indicators, and the Fed’s latest interest rate decision. The DJIA’s broad collection of blue-chip stocks offered a balanced view of the market, painting a picture of moderate optimism as investors adjusted their portfolios.

Meanwhile, the tech-heavy Nasdaq Composite concluded its trading at 14,058.68, managing to eke out a gain of 25.88 points. This increase was led by Alphabet’s notable post-earnings surge which managed to offset the weakness from other tech stocks like Microsoft. Despite some sectors within the index facing headwinds, the Nasdaq managed to stay buoyant, indicating the enduring strength of the technology and consumer discretionary sectors.

The S&P 500, a key benchmark for US equities, rose by 19.87 points, reaching 4,556.21 by the market close. Today’s gain was a well-rounded effort, with contribution from various sectors, showcasing the strength of the broader market despite some sectors underperforming.

Finally, the Dow Jones Total Stock Market Index, offering the most comprehensive view of the U.S. stock market, ended the day at 45,578.78, up by 174.76 points. 

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