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The week in the markets –
July 28, 2023
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Despite Fed rate increases, the markets managed to surprise
- The Fed increased its benchmark rate to a 22-year high.
- S&P 500: 80% of companies reported earnings surprises.
- GDP in the U.S. comes in hotter than expected.
Both the U.S. Federal Reserve (the Fed) and the European Central Bank lived up to expectations by raising their benchmark lending rates. Analyst consensus suggests this could be the final hike in the current cycle, and this was embraced by the equity markets, propelling both the S&P 500 and the Eurostoxx 50 to recent highs. Nonetheless, the Fed underscored that future monetary policy will be dictated by evolving data trends. This statement steered the U.S. dollar to a softer stance against a basket of currencies and provided a leg-up to various emerging market stock indices.
Midweek brought another surprise package, with the release of U.S. GDP data. For the second quarter, GDP growth came in hotter than expected (at 2.4%), surpassing expectations that ranged between 1.8% and 2%. This performance was primarily driven by strong consumer spending, which bodes well for stock market sentiment. Remarkably, despite the strong growth, inflation continued to ease. The U.S. Commerce Department's inflation measure clocked in at 2.6%, a sharp drop from the 4.1% in Q1 and considerably lower than the projected 3.2%.
In another positive development, jobs data came in stronger than anticipated, with both continuing and initial claims dropping to their lowest levels since January and February, respectively. While most demographic and structural factors have been providing support to the labour market, this resilience indicates that rate hikes have not materially impacted the jobs market.
Given this run of upside surprises, it was fitting that the earnings season also delivered upbeat results. Most corporations have managed to outperform expectations, which lays to rest the concerns of a covert earnings recession going on in the U.S. economy. Nearly half of the S&P 500 constituents have now reported, with 80% of those surpassing expected earnings by an average of 5.65%.
This week's market closing value - week ending July 28, 2023
(As of 4:00 PM ET.*)
| EQUITY INDICES | Level | Change | WTD | YTD | 1-year | 5-year |
| CAD | CAD | CAD | CAD | |||
| S&P/TSX | 20,527.77 | -14.12 | -0.07% | 5.97% | 5.50% | 4.60% |
| S&P 500 | 4,577.12 | 37.69 | 0.99% | 16.94% | 16.15% | 10.48% |
| DJIA | 35,458.96 | 230.48 | 0.81% | 4.57% | 12.65% | 7.15% |
| FTSE 100 | 7,694.27 | 30.54 | 0.53% | 7.34% | 14.26% | -0.12% |
| CAC 40 | 7,476.47 | 43.70 | -0.19% | 16.23% | 31.74% | 5.39% |
| DAX | 16,469.75 | 292.53 | 1.02% | 19.04% | 38.51% | 4.19% |
| Nikkei | 32,759.23 | 454.98 | 2.03% | 14.17% | 15.80% | 2.84% |
| Hang Seng | 19,916.56 | 841.30 | 4.84% | -1.48% | 0.47% | -6.75% |
| CURRENCY RETURNS | CAD | Change | 1-week | YTD | 1-year | 5-year |
|---|---|---|---|---|---|---|
| USD | 1.3235 | 0.0021 | 0.16% | -2.25% | 3.34% | 0.27% |
| Euro | 1.4589 | -0.0114 | -0.78% | 0.64% | 11.70% | -0.84% |
| Yen | 0.0094 | 0.0001 | 0.62% | -9.06% | -1.68% | -4.43% |
| CANADIAN TREASURIES | Yield | Change | COMMODITIES | USD | Change |
|---|---|---|---|---|---|
| 3-month | 5.01 | 0.04 | Oil | $80.42 | $3.49 |
| 5-year | 3.92 | 0.11 | Gold | $1,959.39 | -$3.09 |
| 10-year | 3.52 | 0.10 | Natural Gas | $2.64 | -$0.07 |
| CANADIAN PRIME RATE |
|---|
| 7.20% |
*The data contained in the charts above is provided by Bloomberg as of 4:00 PM ET. Please note that the final closing market values may vary due to data delays and market settlement.
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