Week in Review: July 22, 2022

Markets ended the week higher as investors digested a spate of earnings reports and looked ahead to the Federal Reserve’s upcoming July meeting. Interest rates, as measured by the 10-Year Treasury yield, ended the week at their lowest level since late May, reflecting an unexpected decline in economic activity and lowered expectations for future Fed rate hikes. Markets now expect the Fed Funds rate to end the year at 3.25-3.50%, down from 3.50-3.75% a week ago.

Russia and Ukraine reached an agreement allowing the resumption of grain shipments from Ukraine. Before Russia’s invasion, Ukraine accounted for ~10% of annual global wheat exports. The loss of those exports has contributed to acute food shortages in parts of Africa and the Middle East and placed upward pressure globally on food prices. The agreement also provides for the resumption of grain and fertilizer exports from Russia.

The European Central Bank (ECB) ended nearly a decade of negative interest rates by raising its key deposit rate by 0.50%, bringing it to 0%. The rate hike, the first in 11 years, exceeded consensus expectations for a 0.25% hike. In explaining the rationale for the hike, ECB President Christine Lagarde described the current inflation as “undesirably high.”

Through Friday, 21% of S&P 500 companies had reported earnings, and 68% of those companies have surpassed their earnings estimates. Consolidated earnings growth for the quarter is expected to be 4.8%, according to industry group Factset.