Markets moved higher last week in spite of the Fed raising rates after June's pause.
Overall, 51% of S&P 500 companies have reported 2nd quarter earnings and things are looking better than at the beginning of earnings season. So far, 80% have reported earnings above estimates (above the 5-year average), while only 64% have reported revenues above estimates (below the 5-year average). The Fed raised interest rates by 25 basis points last week, in a move that was highly anticipated by the market. The market is expecting that to be the last rate hike in the current cycle as futures point to an 80% probability of no rate hike in September. Even the Fed is no longer calling for a recession this year and their most recent measure of expected 3rd quarter GDP is +3.5%.
Consumer Spending and Consumer Sentiment were improved last week as spending in June was +0.5% after a disappointing May and sentiment hit the highest mark in 18 months.
The Fed’s favorite inflation barometer, PCE Price Index, continued to move lower year-over-year and 2nd quarter GDP came in at +2.4% (higher than expected and greater than +2.0% for Q1). Market breadth continues to improve which could continue to aid the rally. The number of S&P 500 companies that traded above their respective 50-day moving averages nearly hit 90% last week. When we reach that kind of market breadth, it typically signals a rally, with 12-month returns following such a mark in breadth being positive 96% of the time.
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