Markets holds early gains after Powell says Fed will slow pace of hikes

Dow jumped 436, advancers over decliners an impressive 5-1 & NAZ soared 469.  The MLP index gained 4+ to the 209s & the REIT index was up 4+ to 420.  Junk bond funds were bid higher & Treasuries saw limited buying, nudging rates lower.  Oil continued up 2+ to the 97s & gold was up 7 to 1724 (more on both below).

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The Federal Reserve raised its benchmark interest rate by 75 basis points for the 2nd straight month as it tries to bring scorching-hot inflation under control, a move that threatens to slow US economic growth & exacerbate financial pressure on Americans.  The widely expected move puts the key benchmark federal funds rate 2.25-2.50%, the highest since the pandemic began 2 years ago.  It marks the fourth consecutive rate increase this year; investors will be closely watching Fed Chair Jerome Powell's press conference after the decision for signs of how long the rapid pace of rate hikes will continue.  Hiking interest rates tends to create higher rates on consumer & business loans, which slows the economy by forcing employers to cut back on spending.  Mortgage rates have nearly doubled from one year ago to 5.14%, the highest since 2008, while some credit card issuers have ratcheted up their rates to 20%.  Policymakers have remained confident that they can slow growth enough to tame inflation without dragging the economy into a recession.  But experts are increasingly skeptical that the Fed will be able to achieve that type of outcome — referred to frequently as a "soft landing."  That's in part because at least some of the inflationary pressures stem from unexpected supply disruptions like the Russian war in Ukraine & COVID-19-related lockdowns in China.  While the Fed can control demand, it does not have the necessary tools to address supply.

Powell announces mega-rate hike amid fears of deeper recession

Boeing's (BA), quarterly profit, a Dow stock, fell as it awaited regulatory approval to resume deliveries of its 787 Dreamliner & charges continued to mount at its military & space unit.  EPS fell to 32¢ in Q2 compared with $1 during the same period a year earlier.  Adjusted per-share loss of 37¢, which excludes pension charges, fell short of the 13¢ loss estimate.  Sales in the qtr fell 2% to $16.7B, below the $17.6B estimate.  BA booked a $93M charge on its Starliner space capsule in the qtr.  It successfully launched the Starliner in May, but incurred higher costs after a botched earlier mission.  BA also took a $147M charge on its MQ-25 refueling drone as costs rose to meet requirements set by its US Navy customer.  The company said it had positive operating cash flow in Q2.  It reiterated the target of generating surplus cash for the full year.  "Even as we navigate a difficult environment, we are making progress across key programs and are beginning to hit significant milestones," said CEO David Calhoun.  Monthly production of the 737 MAX has reached 31, up from 16 a year ago, as it deals with supply-chain challenges such as engine shortages that are also affecting rival Airbus.  BA has said it stepped up 737 deliveries in Jun.  The stock was up 19¢.
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Boeing profit falls as plane maker awaits Dreamliner approval

Americans grew even more pessimistic about the US economy over the past month, according to the latest survey on consumer attitudes, intentions & expectations from The Conference Board.  The consumer confidence index for Jul slipped to 95.7 from Jun's revised reading of 98.4, which was adjusted downward by 0.3 points.  It's the lowest index reading since Feb 2021, when levels were 95.2; however, the Jul number remains considerably above the deeply pessimistic readings during the last recession, when the index fell as low as 25.3.  It's the 3rd consecutive month that the index fell, a decline driven by consumers souring on the state of current business conditions.  The index that tracks assessments of current business & labor conditions tumbled to 141.3 from 147.2.  It's a sign that growth has slowed during the 3rd qtr, Lynn Franco, The Conference Board's senior director of economic indicators said.  Consumers' expectations for the next 6 months ahead held relatively steady, but remain at a level that suggests recession risks persist, she noted, adding that inflation continues to weigh heavily.  "As the [Federal Reserve] raises interest rates to rein in inflation, purchasing intentions for cars, homes, and major appliances all pulled back further in July," Franco added.  "Looking ahead, inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months."

Consumer confidence slips for third straight month

Gold prices finished a bit higher on the heels of a 2-session decline, then extended their gains into the electronic trading session after the Federal Reserve‘s decision to lift interest rates, as expected.for Aug rose $1 to settle at $1719 an ounce.  Prices edged up to $1723 in electronic trade, shortly after the Fed's policy announcement.  Gold futures ended with a modest gain, then moved up further in the immediate aftermath of the central bank's monetary policy decision in the PM.  Gold clearly had today's rate rise priced in, trading pretty much flat in a tight range before and after the statement.  As a result, the 10-year Treasury rate moved lower, falling to 2.75%, almost 50bps lower than 1 month ago but more importantly, the 10-year real yields moved lower, too, falling to below 40 basis points after reaching levels of over 80bps in mid-Jun.  The fall in real rates indicates investors believe the Fed will likely need to reduce rates sooner than expected to combat slow growth or even recession.  While 10-year inflation expectations have fallen from their highs as well, the persistence of high energy prices increase the possibility of continued elevated levels of inflation, even with slower domestic & global economic growth.  Lower real rates & elevated levels of inflation are supportive for gold prices.

Gold prices end higher, extend gains after the Fed lifts interest rates as expected

Oil futures climbed, with US prices marking their highest settlement in a week.  There's no other way to look at energy prices today without a bullish outlook.  The Energy Information Administration reported much larger inventory draws across the board with US crude, gasoline & distillate supplies all down last week.  Oil crude could regain the $100 level in the days & weeks to come.  Sep West Texas Intermediate crude rose $2.28 (2.4%) to settle at $97.26 a barrel, the highest front-month finish since Jul 20.  Prices extended their gains after the Federal Reserve said in the PM that it would raise its benchmark short-term rate by another 0.75 percentage point.

Oil prices settle at their highest in a week

Dow jumped 400 after the announcement & held that advance for the rest of the session. The rate hike was well advertised & investors liked it.  NAZ benefited from favorable earnings at major companies.  Tomorrow is a new day & it brings GDP.  The data which will show if the economy is in a recession.  Already, it feels that way even if it's only a limited one.

Dow Jones Industrials