Weekly Market Brief: July 31, 2023

The Dow Jones Industrial Average reached 13 consecutive days of gains last week before dropping sharply on Thursday. That matched the longest streak in more than 100 years. Despite the Dow's impressive run, it was growth indexes that won the week: the NASDAQ Composite rose 2%, thanks to strong performance from a handful of mega caps after their Q2 earnings reports. Energy stocks also had a strong week, helped by a 4.5% rally in the price of crude oil. 

The Federal Reserve hiked rates 0.25% on Wednesday, bringing the Federal Funds Target rate to the highest level in more than 20 years. It could very well be the final hike of this cycle, as inflation continues to moderate towards the Fed's 2% annual target. Jerome Powell declined to declare victory at his post-meeting press conference, though. June's promising CPI report was just one month of data, and there are 2 more inflation readings before the next FOMC meeting in September. The Chair was non-committal about what the next move might be, vowing to remain data dependent now that rates are clearly in restrictive territory.

Monitoring Macroeconomics

GDP growth accelerated to a 2.4% annual rate in Q2, up from a 2.0% in Q1. The US consumer has proven more resilient than most economic forecasters believed possible, non-residential investment is accelerating, and last year's downturn in residential construction appears to have turned the corner. A 'soft landing' - the scenario where the Fed successfully contains prices without creating widespread economic hardship - seems more and more likely with each passing month, and calls for recession are slowly fading.

Measures of inflation remain well above the Federal Reserve's 2% goal, but CPI has decelerated for 12 straight months and measures of core price changes just dropped to the lowest rate since 2021. Unemployment, meanwhile, is near 70-year lows, and job creation to start 2023 has been well above the level needed to keep pace with population growth. The most obvious risk to the outlook is that the Fed may have already hiked rates too far, and the resulting slowdown in credit could crush investment and spending. More details on lending activity will be available when the next Senior Loan Officer Survey is published.

What's Ahead

Here are the key data releases to keep on eye on in the coming days.