The Dow Jones Industrial Average notched its 13th consecutive daily gain, marking its longest winning streak since 1987. Over the past week, stocks ended higher with growth stocks, particularly those in technology, leading the gains. Although trading was relatively subdued due to the summer vacation season, a series of positive economic readings and plummeting expectations for further rate hikes in 2023 contributed to the upward trend.
Key highlights:
Positive Economic Data: Inflation figures were lower than expected, with the core personal consumption expenditures (PCE) price index rising 0.2% in June, down from 0.3% in May, and employment cost index rising only 1.0% in the second quarter. Additionally, the economy expanded at a 2.4% pace year-over-year in the last quarter, surpassing expectations. Durable goods orders and personal spending also showed positive signs.
Federal Reserve’s Stance: The Fed increased the federal funds target rate by 0.25% as expected but signaled that it may be done raising rates for the year. This resulted in market expectations shifting from a 90.8% chance of further rate hikes by year-end to only a 27.4% chance.
Reassuring Inflation and Growth Signals: The reassurance from inflation data pushed down U.S. Treasury yields somewhat, but strong growth signals led to a sharp increase in the yield on the benchmark 10-year note by week’s end.
Bond Market Performance: The investment-grade corporate bond market and other securitized credits saw a tightening of spreads, led by mid-tier banks. Higher-yielding bonds led the tax-exempt municipal bond market.
Prospect of Soft Landing: Data from the week indicates that the economy may manage a soft landing and avoid a recession despite increased borrowing costs.
Technology-Heavy Gains: The Nasdaq Composite led the gains, with growth stocks outpacing their value counterparts.
The market’s performance reflects a blend of optimism around economic data and the belief that restrictive monetary policy won’t heavily curb growth. This is coupled with reassurance from the Federal Reserve and a strong technology sector driving the growth.
