Market Observations - July 27, '23
Uphold Institutional
Uphold provides an edge for institutional investors to succeed in the new digital asset economy.
Econ Brief:?As expected, the Fed opted to raise rates from 25bps to 5.50%, a 22-year high. In the statement, the Fed says it will “continue to assess additional information” as it considers “the extent of additional policy firming that may be appropriate,” repeating the language used in June. Additionally, the Committee maintains a relatively solid assessment of current conditions, upgrading its characterization of topline activity from “modest” in June to a “moderate pace” in today’s July statement. Finally, officials deemed it appropriate to maintain the current pace of balance sheet runoff with monthly caps of $60 billion and $35 billion of U.S. Treasuries and mortgage-backed securities, respectively. The decision was unanimous.
That expectation, already baked into stock prices and rate futures before Wednesday’s widely-telegraphed quarter-point increase, didn’t change much when Powell started talking, as he now does after every meeting of the FOMC. Sure, traders who have reacted to Powell’s initially dovish or hawkish tone have often, as they say on Wall Street, “had their faces ripped off” in the final hour-and-a-half of trading as stocks reversed course and wrong-footed them. But Wednesday’s gyrations were relatively mild because the notion of more tightening looks fanciful, even if that is what the Fed would like us to think. We are almost certainly at what history will show to be the end of a rate hiking cycle. The Dow registered its 13th consecutive gain Wednesday, rising 82 points or 0.23%. The only time it has managed a longer streak, the index’s constituents included The Pacific Mail Steamship Company and National Lead, and the Wright Brothers’ historic flight was still six years away. With stocks having retraced almost all their losses since last year’s bear market but earnings not cooperating, the benchmark S&P has rarely been so expensive. That was easier to explain away when bonds had almost no yield, and the TINA trade reigned supreme. It is a lot harder when buying a risk-free U.S. Treasury bill maturing in six months will pay a juicy 5.5%. The “earnings yield,” or the inverse of the market’s trailing price-to-earnings ratio, is now just 4%. What can go wrong?
U.S. Thursday market Wrap:?The Federal Reserve raised rates for the eleventh time this cycle via a unanimous decision, leaving the door open for another this year. Stocks were mixed, but the Dow managed to eke out its thirteenth straight day of gains. Seven of the eleven S&P sectors closed green — communication services +1.56% led, and technology -1.34% lagged.
Chinese electric vehicle (E.V.) maker Xpeng soared 27% after announcing it will jointly develop two new VW-brand EVs for the Chinese market. Volkswagen is also investing $700 million in Xpeng for a 5% stake in the company.
Stellantis shares rose 4% after earnings. The automaker says Tesla is entering its area of expertise, where tight pricing, cost competitiveness, and operational issues pose significant challenges.
Currently, the bond market is pricing about an 80% chance of keeping rates where they are and a 20% chance of raising another 25 bps. Overall, the market believes the Fed is behind the curve on inflation again and will not need to hike again by the end of the year. The majority of the Fed’s officials seem to think otherwise.??In the meantime, stocks continue to price in a “soft landing” where the economy grows at a moderate pace and inflation comes down over time.??Overall, optimism continues to reign supreme despite the Fed’s best efforts to calm the markets and economy down. The party looks like it will continue until a significant enough risk comes along to throw the bulls off track.
Futures are rising as investors bet that the Federal Reserve might be done tightening policy. Tech stocks, in particular, are rising premarket, with Meta Platforms gaining nearly 9% after the Facebook owner reported strong quarterly sales growth.
Overnight Asian markets were broadly higher, led by gains in Hong Kong driven by a surge in property stocks. Japan’s Nikkei advanced to a 3-week high.
European stocks are higher in early trade ahead of the ECB policy meeting later this morning. A 25bps hike is expected.
U.S. Treasury yields are up slightly this Thursday morning, the 10y treasury is up around 2bps to 3.87%, and the 2y yield is unchanged at 4.833%.
In a press conference on Wednesday, Powell said there was a possibility of further rate hikes and holding rates at the current level when policymakers next meet in September. He added that these decisions would continue to be data-dependent. “We’re going to be making careful assessments, as I said, meeting by meeting,” Powell said. Many investors have been hoping that the Fed will end its rate-hiking campaign soon as concerns about elevated rates leading the U.S. economy into a recession have taken hold. The central bank chief on Wednesday also addressed the inflation outlook, indicating that despite easing pressures from rising prices, there’s still “a long way to go” before inflation returns to the Fed’s 2% target. The last CPI print came in at 3% on an annual basis. Investors will get fresh insights on Friday when the personal consumption expenditures price index for June is due.
Later this morning, we will get a look at a preliminary reading of the GDP for the second quarter is expected, as are June’s durable goods orders and home sales figures and the latest weekly initial jobless claims data.
Crypto Market Rundown:?
The global crypto market cap now exceeds $1.19T, up +0.91% in the past day.
As of 10:00AM ET, Bitcoin is trading at $29,440.?Ethereum is trading at $1,875.?More interestingly, we have seen a few altcoins perform well (XDC +78%, MKR +22%, LINK +18%, DOGE +14%, and XLM +13%) over the last week, despite the lack of movement from Bitcoin.?
Top 5 Gainers on Uphold Ascent in the past 24H:?
The Top 5 Losers on Uphold Ascent in the past 24H:?
Send our team a message if you would like to learn more about our product offerings - Uphold Intelligence (Research) and Uphold Ascent (OTC platform). Reach out to Christopher Robin Siedentopf, Adam Blumenfeld or Austin Sigsworth.
NOT FINANCIAL ADVICE
Please note that Uphold and its affiliates do not provide investment, tax, or legal advice. This message is for informational purposes only and takes no account of particular personal or market circumstances, and should not be relied upon as investment, tax, or legal advice. For investment, tax, or legal advice and before taking any action you should consult your own advisors. Note that digital assets such as cryptocurrencies present unique risks for investors. Please see our disclaimer regarding risks specific to holding digital assets before investing.