Markets Gain Amid Fed Rate Hike Speculation

(CapitalWatch, July 18, New York) Expectations of the Fed implementing a 100 basis points rate hike next week are lowering amid signs of some economic reprieve. 

Disappointing numbers from the consumer price index heightened concerns over a 100 basis point raise. In June, the index increased 9.1% since June of 2021, well above the Dow Jones estimate of 8.8%. As prices balloon, June's numbers also show that workers' hourly wages fell 1%, down 3.6% from a year ago.

After new reports that show that rising prices may slow down, more analysts speculate that the central bank will opt for a 75 basis points hike instead of 100. 

Ahead of the weekend, Federal Reserve officials signaled that they will likely stay with a 75 basis point interest rate increase at next week's meeting.

A preliminary survey of consumers from the University of Michigan released Friday showed that consumers see inflation running at 2.8% over the short-term horizon, down from 3.1% in June.

Additionally, an influx of positive earnings reports is boosting investor confidence. According to Refinitiv data, 80% of the S&P 500 companies that have reported earnings through Monday morning beat expectations in the second quarter of 2021.

Data on Treasury yields started the week strong. The yield on the 10-year Treasury note rose to 2.9% and the yield on the 30-year bond rose by 3.1%. Although yields for both bonds rose, the gap between the 2-year and 10-year yields is inverted, often seen as a sign that a recession is on the horizon.

In New York, the Dow Jones Industrial Average fell around 0.08%, the S&P 500 fell 0.13%, and the Nasdaq Composite finished up 0.03%.

Worldwide, the MSCI reports that stocks gained half a percent Monday. Although the euro dipped amid energy supply concerns, the STOXX 600 index rose by just under a percent Monday. The Hang Seng Index closed up 2.7% and the Nikkei 225 also rose half a percent.