Stocks Up, Bonds Down as Fed Raises Interest Rates

The Dow (+0.7%), NASDAQ (+2.0%) and S&P 500 (+1.0%) each gained for the week.  Conversely, taxable bonds and tax-free municipal bonds fell about 0.4%, as the 10-year Treasury yield eclipsed 4% again, rising 0.13% to end the week at 3.97%.  The sharp rise in the 10-year Treasury yield is in reaction to Japan’s sudden rise in their corresponding bond yields.

As expected by nearly all investors and economists, the Fed raised interest rates by 0.25% last week, as the Fed also said very little in its news conference to sway investors either way regarding their next move in September.  Most economists believe that the Fed will pause again in September, but the Fed Chairman Powell repeated his prior messages that their decision at the next meting will depend on the data over the next 2 months.

From an economic news perspective, unemployment claims went down, suggesting that the labor market continues to remain robust.  The Fed-favored Personal Consumption Expenditures (PCE) also came in fairly tame compared to previous months, but still well above the Fed’s target of 2%.  Earnings season is in full force this week, as 170 of the S&P 500 companies will report their quarterly earnings, including two tech behemoths – Apple and Amazon.  After this week, a majority of the companies will have reported their earnings, and the trend will be interesting to see.

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