Markets ended the week higher as nearly a third of S&P 500 companies reported earnings, the Fed concluded its July FOMC meeting, and fighting continued in the Middle East. Comments by Fed Chair Kevin Warsh and elevated energy prices maintained upward pressure on interest rates with the 10- and 30-Year Treasury yields closing at 4.74% and 5.28%, respectively, their highest levels since January 2025 and July 2007. Beyond recent volatility in AI-related stocks, the broader markets have not yet had a meaningful reaction to the rise in rates. That could change, however, if the 10-Year breaches the psychological barrier of 5%.
As expected, the Fed left interest rates unchanged at its July Federal Open Market Committee (FOMC) meeting. However, three members voted to increase rates by 0.25%. Like the last meeting, the post-meeting statement contained no forward guidance. Speaking afterwards, Warsh noted yields are “materially higher” since the June meeting, as prices have reacted to incoming information. Warsh admitted “the reduction in forward guidance may have been a factor” as “market participants are learning to play the ball, not the referee.” Market expectations for a September rate hike ended the week at 72%, up from 55% a week ago, and 46% a month ago.
Through Friday, 61% of S&P 500 companies had reported second quarter earnings with 86% beating their consensus estimate. According to industry group FactSet, consolidated earnings growth is currently expected to be 47%, which would be the strongest since 2Q21. However, excluding Google-parent Alphabet and Amazon, whose earnings benefitted from large unrealized gains on equity securities, consolidated earnings growth is forecasted to be 29%.
