Last week (7/24-7/28), global stock markets recorded gains. In the US, the S&P 500 index rose by 1.0%, the Dow Jones Industrial Average increased by 0.7%, and the Nasdaq 100 index saw a significant rise of 2.1%. In Europe, the STOXX 600 index experienced a gain of 1.2%. Among Asian markets, the Hong Kong Hang Seng Index performed the best with a notable increase of 4.4%.

【Source: MacroMicro  Date2023/7/24-2023/7/28】

【Source: MacroMicro   Date2023/1/1-2023/7/28】

On July 26th, Eastern Time, the Federal Reserve announced a 25 basis point rate hike, raising the target range for the federal funds rate to 5.25% to 5.50%, reaching a 22-year high as expected by the market.

Regarding future rate hikes, Powell believes that a decision should be made after seeing more data, and if the data supports it, another rate hike may occur in September. Additionally, the Fed no longer predicts a recession for the U.S. economy and has improved its assessment of the U.S. economy.

The market's response to the meeting was lackluster, with slight fluctuations in the three major stock indices. The S&P 500, Nasdaq, and Dow Jones recorded -0.02%, -0.12%, and 0.23% respectively. The CME Group's FedWatch tool also indicates that market expectations for the Fed's rate hike path have not changed significantly, with no further rate hikes expected this year as the baseline scenario, and expectations for a rate cut still set for March next year.

【Source：CME】

Nick Timiraos, a Wall Street Journal reporter known as the "new Fed wire," believes that wage and inflation growth in the United States is continuing to slow down. If this trend continues over the next few months, the Fed is likely to hold steady in September and at least maintain the current interest rates until the end of the year.

Mitrade Analyst：

As the Federal Reserve's interest rate hiking cycle approaches its end, the impact of rate decisions on the stock market is diminishing. The market is now trading in anticipation of a pause or even a cut in interest rates. Given the further decline in core inflation, there is a high probability that the Fed will skip a rate hike in September. However, there is still a possibility of inflation picking up in the fourth quarter, indicating that the Fed's rate hikes may not be over.

On July 27th, according to data released by the US Department of Commerce, the initial estimate for the annualized quarter-on-quarter real GDP growth rate in the second quarter of the United States was 2.4%, surpassing the expected increase of 1.8%. The initial estimate for the quarter-on-quarter growth rate of personal consumption expenditure rose by 1.6%, exceeding the expected increase of 1.2%. Additionally, the initial estimate for the annualized quarter-on-quarter growth rate of the core Personal Consumption Expenditures Price Index (PCE) rose by 3.8%, slightly below the expected increase of 4%.

【Source：MacroMicro 】

These data indicate a strong performance of the US economy. Analysts are increasingly convinced that the United States can avoid an economic recession as inflation eases and economic growth continues.

Officials are also optimistic about the future of the US economy. Powell stated that the Federal Reserve has withdrawn its prediction of an economic recession in the United States internally, while acknowledging the need to continue efforts to bring inflation down to the target level of 2%.

On July 28th, the latest data from the US Department of Commerce showed that the core PCE price index, which is favored by the Federal Reserve as a measure of inflation excluding food and energy, decreased from 4.6% in May to 4.1% on a year-on-year basis, further reinforcing expectations of a downward trend in US inflation.

【Source：MacroMicro 】

Mitrade Analyst：

The market's focus has shifted from inflation to recession, and the most important economic indicator reflecting a recession is the labor market. As long as Americans have jobs, they can maintain their current level of consumption, making it difficult for a recession to occur.

Attention is now on the July nonfarm payroll report scheduled to be released this Friday. Economists predict a gain of 190,000 jobs in July, with the unemployment rate expected to remain unchanged at 3.6%. If the numbers fall significantly below expectations, concerns about a recession may resurface. However, we estimate that the likelihood of this scenario is relatively small.

The Q2 earnings season has reached its peak, with many companies revealing unexpectedly performances. There is a significant divergence between market expectations and actual results.

Last week, Meta and Alphabet continued to rise after releasing their earnings reports, with both stocks gaining over 10% in one week, accumulating increases of approximately 10.6% and 10.5%, respectively. However, Microsoft, which also reported its earnings, dropped by nearly 1.6%, while Netflix declined by 0.4%.

After-market on Thursday (August 3rd), Apple and Amazon will release their earnings reports. According to Bloomberg analysts' consensus estimates, Apple's Q2 revenue is expected to be around $81.583 billion, with adjusted net profit of $18.819 billion and earnings per share of $1.203.

If the results fall below expectations, it could potentially put pressure on the Nasdaq 100 index. Since the beginning of the year, the tech-heavy Nasdaq 100 has risen by nearly 44%, reaching relatively high valuation levels.

【Source：MacroMicro 】

However, the market currently holds a positive view on upcoming company earnings. Refinitiv data shows that as of last Friday (28th), over half of the S&P 500 index constituents had reported their Q2 results, with 78.7% of companies exceeding analysts' expectations.

Mitrade Analyst：

As technology stock valuations rise, the market's sensitivity to financial reports increases even more. Companies must continue to deliver impressive performance during the current earnings season in order to maintain market optimism and justify premium prices. If performance fails to meet expectations, there is a strong possibility of a market correction.