Wall Street Ends the Month with a Flourish

Equity markets ended the week with positive vibes and broad support from corporate outcomes.

Furthermore, there was no surprise from the Federal Reserve's meeting. Wednesday saw the US central bank raise its benchmark interest rate by 0.25%, hitting a range of 5.25% - 5.5%, a peak not seen in over two decades. This choice to continue one of history's sharpest hiking cycles, following sturdy economic data, came as anticipated by investors after a pause at the previous meeting.

However, Fed Chairman Jerome Powell cleverly dodged confirming potential rate hikes at the upcoming September meeting. He alluded to the chance of an increase if backed by economic data, but also left the door open for the existing rate to be upheld based on continual evaluations.

Statements from the Federal Reserve Open Market Committee reinforced that inflation was holding steady at high levels, with commendable job growth and moderately paced economic expansion journeying along.

Finally, earnings season delivered more good news, paced by stellar reports from several tech titans. The outcomes largely surpassed expectations, bolstering growth sectors already off to a cracking start this year and further fanning the flames of anticipation for prospective earnings from the burgeoning AI realm.

Consequently, Wall Street resumed its rally. The S&P 500 gained 1.01%, at 4,582.23, while the Nasdaq Composite climbed 2.02%, to 14,316.66 at closing.

In Europe, the MSCI EMU was up 1.36%. The mood was uplifted on Thursday following the European Central Bank's recent policy-setting meeting. The ECB raised interest rates by 25 basis points to a 23-year peak on Thursday, as widely expected. Yet, President Christine Lagarde caught the market off-guard by suggesting that this series of tightening, presently including nine consecutive rate rises, might soon be wrapping up.

In Asia, equity markets climbed as China stimulus hopes boosted sentiment. Monday saw a commitment from China's key leaders to enhance policy support for the economy, with a focus on bolstering local demand and alluding to further stimulus measures. The Shanghai Composite jumped 3.42%. Japan’s Nikkei was also in the ascendancy, up 1.41%. The Bank of Japan surprised by shifting the boundaries of its yield curve control policy, potentially a slight tightening of its very loose monetary policy.

The Bank of Japan maintained ultra-low interest rates but shifted the boundaries of its yield curve control policy, underscoring growing concerns over the effects of prolonged monetary easing.

Communication Services shine

The communication services sector which includes social media giants, telecom firms, and TV-entertainment stocks rallied nearly 6.85% week-over-week, its second-best performance so far in 2023. Meta Platforms, Inc. (META) and Alphabet (GOOG) shares provided the greatest support to the sector performance, skyrocketing 10.61% and 10.56% respectively after beating expectations.

The rally in energy showed no sign of abating. The sector was up 1.68% for the week, as oil prices climbed to three-month highs. The WTI crude oil price gained 4.55%, notching a fifth positive week in a row.

Information technology fared well (+1.27% for the week) even though Microsoft Corporation shares (MSFT) fell 1.57% after beating expectations with $56.2bn in revenue for the latest quarter but reporting slower growth for its cloud service Azure. By contrast, Apple stocks (APPL) gained 2.03%.

Unlike last week, defensive sectors were a drag on the broader market. Utilities lost 2.10% while healthcare stocks fell 0.85%. It was also a tough week for real estate (-1.80%), hit by rising yields after an unexpectedly strong US GDP report that coincided with the Federal Reserve's rate hike decision. The 10-year Treasury yield gained 12 basis points to 3.96% from 3.84%.

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