[New York Stock Market] Slight Gains Ahead of FOMC Results... Dow's 12th Consecutive Trading Day Rally

The three major indices of the U.S. New York stock market all closed higher on the 25th (local time) ahead of the Federal Reserve's (Fed) key interest rate decision and earnings reports from major companies including Google Alphabet and Microsoft (MS). The Dow Jones Industrial Average, composed of blue-chip stocks, extended its upward trend for the 12th consecutive trading day.

On this day at the New York Stock Exchange (NYSE), the Dow closed at 35,438.07, up 26.83 points (0.08%) from the previous session. This marked the 12th consecutive day of gains and the longest rally since February 2017. The S&P 500, which focuses on large-cap stocks, rose 12.82 points (0.28%) to 4,567.46, while the tech-heavy Nasdaq index closed up 85.69 points (0.61%) at 14,144.56.

Within the S&P 500, stocks related to materials, technology, communications, energy, and utilities rose, while real estate, financials, consumer discretionary, and industrial sectors declined. 3M closed more than 5% higher after reporting quarterly results that exceeded expectations. General Electric (GE) rose over 6% following an upward revision of its annual guidance due to strong earnings. Microsoft and Google Alphabet, which were set to release earnings after the market close, ended the regular session up 1.7% and 0.56%, respectively. Chinese-related stocks such as Didi Global, TAL Education, NIO, and Gaotu also rose somewhat, buoyed by expectations of economic stimulus in China.

On the other hand, Spotify fell more than 14% due to disappointing earnings. General Motors (GM) also dropped over 3% despite better-than-expected results, as delays in its electric vehicle segment caused investor disappointment. PacWest Bancorp plunged more than 27% and trading was halted following a Wall Street Journal (WSJ) report that a California bank was entering acquisition talks.

[Image source=Reuters Yonhap News]

Investors awaited the July Federal Open Market Committee (FOMC) results to be released the next day, closely monitoring major earnings including big tech and the International Monetary Fund (IMF) world economic outlook announcement. The market currently largely assumes a "baby step" (a 0.25 percentage point increase in the key interest rate) this month. The key question is what hints the Fed will provide regarding future rate policy through the monetary policy statement and Fed Chair Jerome Powell’s press conference. Recently, as inflation concerns have eased, there have been growing expectations that the Fed might end the tightening cycle early after this month’s rate hike.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices in a 98.9% probability that the Fed will raise rates by 0.25 percentage points at the FOMC meeting ending the next day. This would set the U.S. key interest rate at 5.25?5.5%. The likelihood that the Fed will hold rates steady at the following September meeting is around 80%. However, following a WSJ report the previous day that Fed officials are concerned the recent easing of inflation may be temporary, the probability of an additional hike in September has risen to the 20% range. Bloomberg News highlighted internal divisions within the Fed, noting that "after a year of firm consensus on the need for rate hikes, the Fed is now deeply divided as it weighs when to pause increases."

Later in the week, the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, will also be released. The core PCE price index is expected to have risen 4.2% year-over-year, down from 4.6% the previous month. If the PCE price index unexpectedly shows strong readings, concerns about Fed tightening could rise again. Tom Heinlein of U.S. Bank said, "I think there is still more information to come," adding, "I can’t say with certainty that this will be the last hike of the year."

The IMF raised its global economic growth forecast for this year to 3.0%, up 0.2 percentage points, in a revised report released on the same day. This adjustment reflects stronger-than-expected resilience in the global economy and stabilization following financial sector turmoil earlier this year. However, inflation remains a significant concern. The IMF noted, "Core inflation is expected to remain unchanged in more than half of countries this year," and "Inflation is projected to exceed targets in 96% of countries with inflation management goals." Central banks’ interest rate hikes to curb inflation are cited as a burden on the overall economy.

IMF Chief Economist Pierre-Olivier Gourinchas stated, "As inflation begins to slow, we are entering the final phase of the inflation cycle that started in 2021," but cautioned, "It is important not to prematurely ease rates until inflation shows clear and definitive signs of cooling."

The corporate earnings season continues. After the market close on this day, Google Alphabet reported second-quarter earnings of $1.44 per share and revenue of $74.6 billion, surpassing Refinitiv’s market estimates of $1.33 per share and $72.82 billion in revenue. Microsoft reported earnings per share of $2.69 and revenue of $56.19 billion, beating Refinitiv’s estimates of $2.55 per share and $55.47 billion in revenue. In after-hours trading, Alphabet’s stock price rose more than 6%, while Microsoft’s declined over 1.5%.

U.S. home prices showed an upward trend. According to the S&P CoreLogic Case-Shiller index, the national home price index rose 0.7% month-over-month in May, marking four consecutive months of gains. However, compared to the same period last year, prices fell 0.5%. On the same day, the Conference Board’s U.S. Consumer Confidence Index for July reached 117, the highest since July 2021, exceeding expert expectations.

In the New York bond market, Treasury yields rose. The 10-year U.S. Treasury yield hovered around 3.88%, while the 2-year Treasury yield, sensitive to monetary policy, was around 4.86%. The dollar index, which measures the value of the U.S. dollar against six major currencies, remained steady at 101.2. Commodity prices, including copper, rose amid expectations of additional economic support policies from China’s leadership.

International oil prices rose for the fourth consecutive trading day. On the New York Mercantile Exchange, September delivery West Texas Intermediate (WTI) crude oil closed at $79.63 per barrel, up 89 cents (1.13%) from the previous session. This is the highest closing price since April 18.