El rally continúa y las ‘mega caps’ retoman el liderazgo

The market continued its rise on a busy week of earnings and economic news.  Investors continue to expect that the Fed is close to being done raising rates, and hope that earnings growth will accelerate in the second half of the year. The market did change from its recent trend of having a wider range of stocks participating in the rally to the mega caps being the main participants.  To wit, the Vanguard Mega Cap Growth ETF (MGK) rose 2.0% while the Invesco S&P 500 Equal Weight ETF (RSP) eked out a 0.2% gain. 

The S&P 500 communication services sector was the best performer by a wide margin, rising 6.9%, reflecting the strong showing from Meta Platforms and Alphabet. Other top performers included the materials (+1.8%) and energy (+1.7%) sectors. Meanwhile, the utilities (-2.1%) and real estate (-1.8%) sectors saw the biggest declines. 

Regarding earnings reports, Microsoft (MSFT), Alphabet (GOOG), and Meta Platforms (META) were the most notable ones. Microsoft’s results were deemed a little disappointing when its revenue guidance didn’t live up to expectations, and marred what was a good report overall. Alphabet and Meta Platforms both delivered results that triggered positive action.  Those stocks were joined by  some blue chip names like Boeing (BA), McDonald’s (MCD), and Dow Inc. (DOW), also having well received earnings reports.

The Fed voted unanimously on Wednesday to raise rates by 25 basis points as expected. The policy directive also upgraded the description of economic activity to expanding at a moderate pace from continuing to expand at a modest pace in the June directive. Expectations for a second rate hike at any of the meetings before the end of the year were largely unchanged. According to the CME FedWatch Tool, probability of a second rate hike at any of the remaining FOMC meetings this year remains under 30%. 

The ECB followed the Fed rate hike with a 25 basis points increase in its three key lending rates, although there is some speculation, driven by the language in its directive, that the ECB could also be close to being done raising rates.  Elsewhere, the Bank of Japan made no changes to its interest rates, but surprised market participants when it voted to conduct its yield curve control policy with greater flexibility, saying it will maintain the target rate at 0.5%, but will offer to purchase 10-yr JGBs at 1.0% every business day through fixed-rate purchase operations.