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Dow jumps 450 points, Nasdaq jumps 4% as Powell says Fed could slow pace of rate hikes

Stocks rallied Wednesday after the Federal Reserve announced its much anticipated 0.75 percentage point rate increase to fight inflation, but hinted that it could slow the pace of its hiking campaign at some point.

The Dow Jones Industrial Average jumped 459 points, or 1.5% The S&P 500 gained 2.5%, and the Nasdaq Composite increased 4%. Tech shares led gains after better-than-feared results from Alphabet and Microsoft.

Stocks hit their highs of the session in the afternoon as Fed Chairman Jerome Powell left the door open about the size of the central bank’s rate move at its next meeting in September and noted it would eventually slow the magnitude of rate hikes. Powell said in a press conference that the Fed could hike by 0.75 percentage point again in September, but that it would be dependent on the data.

“As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” he said.

Investors were also encouraged after Powell noted that he doesn’t believe the economy is currently in a recession. The second-quarter GDP reading is due on Thursday.

“The rate increases are having their intended effect, we are just not sure what the price is going to be,” said Jamie Cox, Managing Partner, Harris Financial Group. “The main effect is that markets are confident that the Fed won’t allow inflation to become anchored among consumers and businesses, and that’s maybe the first time this year that this has happened.”

Investors have continued to worry that the central bank’s ongoing efforts to lower inflation will push the economy into a recession, or that we may already be in one. Those fears eased Wednesday after Powell said he does not think the U.S. is currently in a recession, adding that “there are too many areas of the economy that are performing too well.”

Many regard two consecutive quarters of negative GDP readings as a recession, but the National Bureau of Economic Research, the official arbiter of recessions, uses multiple other factors to determine one. The GDP reading Thursday is expected to show barely an expansion after first quarter GDP declined by 1.6%.

Stocks started the day on a high note after getting a boost from tech earnings. Tech stocks added to those gains as the overall market rallied.

Alphabet shares rose 8% after the tech giant’s quarterly report showed strong revenue from Google’s search business. Microsoft gained about 6.5% after reporting a 40% jump in revenue growth for Azure and cloud services. The gains came even after both companies posted earnings and revenue that fell below analyst estimates.

“Earnings growth estimates continue to slip, even for the technology sector, which typically holds up relatively well during economic slowdowns,” Sam Stovall, chief investment strategist at CFRA Research, told CNBC. “Pressure from a pullback in consumer spending likely contributed to EPS/sales shortfalls, as all measures of consumer confidence have deteriorated sharply from peaks around mid-2021.”

Meta Platforms shares rose 5%, ahead of its earnings scheduled for after the bell. Amazon advanced more than 3% after getting hit by the retail carnage Tuesday. Apple added more than 1.5%.

Enphase Energy also popped on the back of its latest results, trading about 15% higher. Chipotle also added 13% following its mixed second-quarter earnings release.

More than 150 S&P 500 companies have reported calendar second-quarter earnings thus far. Of those names, roughly 70% have beaten analyst expectations, FactSet data shows.

Fed makes history with second massive rate hike in as many months

What seemed unfathomable just six months ago – a 75-basis-point rate hike by the Federal Reserve – has now happened twice in a row.

At the conclusion of its July monetary policymaking meeting, members of the US central bank on Wednesday once again approved a supersized interest rate hike of three-quarters of a percentage point. Members voted unanimously in favor of the aggressive move to tackle white-hot inflation.

The unprecedented action emphasizes how far the Fed is willing to push the economy to temper rising costs for Americans amid the highest price increases since the 1980s.

“Recent indicators of spending and production have softened,” Fed officials said in an official statement. “Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low.” Inflation is still elevated, they said, “reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”

In prior months, the central bank noted higher energy prices but this is the first month they included rising food costs in their analysis.

When the pandemic first hit the United States, the Fed rolled out a series of emergency measures to support the economy, including slashing its interest rate to zero, making it almost free to borrow money. But while that “easy money” policy encouraged spending by households and businesses, it also fueled inflation and contributed to today’s overheated economy.

Now that the economy no longer needs support from the Fed, the central bank has been taking steps to “remove the punch bowl” and slow down the economy by hiking interest rates.

The Fed’s actions will increase the rate that banks charge each other for overnight borrowing to a range of between 2.25% to 2.50%, the highest since December 2018.

Over the last three decades, the Fed has nudged its benchmark interest rate up or down by an average of 25 basis points, preferring to steer the economy at low speed. But surging inflation compelled the central bank last month to implement a rate hike of three times that size, marking the first time since 1994 that the Fed has rolled out a 75-basis-point increase. Wednesday’s rate hike represents the first time in modern Fed history that the central bank has raised interest rates by 75 basis points twice in a row.

The question now is whether the Fed will be able to remove the punch without ending the party.

How to take advantage of rising interest rates

“Whether the economy can smoothly transition from allegro to adagio is very much in doubt and depends both on the current state of the economy and how the Fed conducts policy from here,” said David Kelly, chief global strategist at JPMorgan Asset Management.

The Fed must execute a delicate balancing act or its strategy could slow economic growth while inflation is still growing. Significant and entrenched inflation could lead to a loss of confidence that the Fed can fulfill its dual mandate of price stability and maximum employment. And Federal Reserve Chairman Jerome Powell has said the biggest risk to the economy would be persistent inflation, not an economic downturn.

In the last 11 tightening cycles, the Fed has only successfully avoided recession three times. During each of those cycles, inflation was lower than it is today. That has made some analysts and market participants nervous.

“A soft landing feels like a long shot from here,” said Seema Shah, chief strategist at Principal Global Investors. “Fed policy cannot directly impact food or energy inflation, while rate hikes so far have done little to slow core CPI [Consumer Price Index] components which are, traditionally, more responsive to monetary policy.”

Analysts at BlackRock said in a note: “We think a soft landing is unlikely. Central banks today face sharp trade-offs between growth and inflation. We expect the Fed to change course only next year, when the economic effects of rate rises become clear.”

Still, investors widely expected the Fed to raise its benchmark interest rate by another three-quarters of a point after a disastrous June inflation report. US consumer prices surged to a new pandemic-era peak in June, jumping by 9.1% year over year, according to the most recent data from the Bureau of Labor Statistics. That’s higher than the previous reading, when prices rose by 8.6% for the year ending in May.

Money is tight in many US households: New data from the Bureau of Economic Analysis shows Americans are saving much less than they did a year ago. In May, Americans saved just 5.4% of disposable personal income, down from 12.4% year over year.

The unemployment rate, meanwhile, is near a 50-year low and has been declining this year. A persistently strong labor market gives the Fed some leeway in maneuvering interest rates.

Fed chair Powell is scheduled to give a news conference at 2:30 p.m. ET on Wednesday.

First Quantum Minerals Reports Second Quarter 2022 Results

TORONTO, July 26, 2022 (GLOBE NEWSWIRE) — First Quantum Minerals Ltd. (“First Quantum” or “the Company”) (TSX:FM.TO) today reports results for the three months ended June 30, 2022 (“Q2 2022”) of net earnings attributable to shareholders of the Company of $419 million ($0.61 earnings per share) and adjusted earnings¹ of $337 million ($0.49 adjusted earnings per share²). As at June 30, 2022, First Quantum had achieved its debt reduction target of $2 billion, from the peak in Q2 2020, and, as previously announced, continues to target a further $1 billion reduction in debt in the medium term.Read more at globenewswire.com

Stock futures rise ahead of key Fed decision, Microsoft and Alphabet pop after earnings

Stock futures climbed early on Wednesday morning, boosted by strong gains from Google-parent Alphabet and Microsoft, as traders await the Federal Reserve’s latest interest rate decision, scheduled for later in the day.

Futures on the Dow Jones Industrial Average rose by 133 points, or 0.4%. S&P 500 futures gained 0.8%, and Nasdaq 100 futures increased 1.4%.

Alphabet shares rose nearly 4% premarket after the tech giant’s quarterly report showed strong revenue from Google’s search business. That said, the company’s overall earnings and revenue came in below expectations.

Microsoft popped 3.7% even after the company’s earnings and revenue came in below analyst estimates.

Enphase Energy also popped on the back of its latest results, trading 9.7% higher. Chipotle also added 8% following its mixed second-quarter earnings release.

There are more major earnings reports to come. On Wednesday, Boeing and Shopify are expected to release their quarterly results before the bell. Qualcomm, Ford and Meta Platforms will report at the end of the day.

More than 150 S&P 500 companies have reported calendar second-quarter earnings thus far. Of those names, roughly 70% have beaten analyst expectations, FactSet data shows.

Investors are also awaiting a key announcement from the Federal Reserve. The central bank will announce its latest interest rate decision on Wednesday afternoon. Markets widely expect a three-quarter percentage point increase in the benchmark rate.

“With so many moving parts to consider, we expect markets to remain volatile after the FOMC meeting,” wrote Mark Haefele of UBS Global Wealth Management. “With the markets anticipating a 3.3% fed funds rate by year-end, this means that after this week’s meeting, there may be around 100bps of rate hikes by end-December. But the pace of hikes remains uncertain.”

This map shows the massive gas pipeline that Russia and China are building

• “Power of Siberia” — as the portion located in Russia is called — began delivering natural gas to northern China in December 2019, according to Chinese state media.
• In China, the pipeline runs down the eastern side of the country, past the capital city of Beijing and down to Shanghai.
• State-owned energy companies, Russia’s Gazprom and China National Petroleum Corp., have been building the pipeline for about eight years.

https://www.cnbc.com/2022/07/27/map-of-power-of-siberia-gas-pipeline-that-china-russia-are-working-on.html

Putin’s new gas squeeze condemns Europe to recession and a hard winter of rationing

• Germany, the region’s largest economy and traditional growth driver, has a particular reason to worry.
• It’s largely reliant on Russian gas and is sliding toward a recession.
• The possibility of a recession in Europe now seems “clear-cut,” Citi economists and strategists said in a note Tuesday.

https://www.cnbc.com/2022/07/27/putins-new-gas-squeeze-condemns-europe-to-recession-and-winter-of-rationing.html

Property stocks drop as Hong Kong shares slip in mixed Asia trade; Australia’s inflation rises

• Real estate stocks in Hong Kong dropped as Asia-Pacific markets traded mixed on Wednesday. Investors also looked forward to the Fed’s policy decision.
• Prices in Australia rose 6.1% in the second quarter compared to the same period a year ago, up from 5.1% in the first quarter of the year. Economists polled by Reuters saw inflation hitting 6.2%.
• The International Monetary Fund on Tuesday cut its global GDP forecasts for 2022 and 2023. It now expects growth to come in at 3.2% this year, 0.4 percentage points lower than its April projection.

https://www.cnbc.com/2022/07/27/asia-markets-australia-inflation-cpi-economic-growth-currencies.html

FirstService Reports Second Quarter 2022 Results

TORONTO, July 27, 2022 (GLOBE NEWSWIRE) — FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported results for its second quarter ended June 30, 2022. All amounts are in US dollars.

Consolidated revenues for the second quarter were $930.7 million, a 12% increase relative to the same quarter in the prior year, including 6% organic growth. Adjusted EBITDA (note 1) increased 2% to $91.3 million, and Adjusted EPS (note 2) was $1.12, compared to $1.21 in the prior year quarter. During the second quarter, FirstService reported GAAP Operating Earnings of $59.8 million, down from $61.4 million in the prior year period. The GAAP diluted earnings per share was $0.78 in the quarter, compared to $0.83 for the same quarter a year ago.

For the six months ended June 30, 2022, consolidated revenues were $1.77 billion, a 14% increase relative to the comparable prior year period, Adjusted EBITDA was $153.7 million, up 3%, and Adjusted EPS was $1.85, in line with $1.87 in the prior year period. FirstService’s GAAP Operating Earnings were $88.9 million in the current year period, versus $95.3 million in the prior year. The GAAP diluted earnings per share for the six months year-to-date was $1.09, compared to $1.32 in the prior year period.

“We are pleased to have delivered another quarter of balanced, double-digit top-line growth across both of our divisions,” said Scott Patterson, Chief Executive Officer of FirstService. “We continue to see strong demand for our services and remain active with recruiting talent to capitalize on the growth opportunities within all of our markets,” he concluded.

https://www.globenewswire.com/news-release/2022/07/27/2486760/36351/en/FirstService-Reports-Second-Quarter-2022-Results.html

Crescent Point Announces Q2 2022 Results

CALGARY, AB, July 27, 2022 /CNW/ – Crescent Point Energy Corp. (“Crescent Point” or the “Company”) (TSX: CPG) (NYSE: CPG) is pleased to announce its operating and financial results for the quarter ended June 30, 2022.

KEY HIGHLIGHTS

• Generated approximately $380 million of excess cash flow in second quarter, allowing for increased returns to shareholders.
• Enhanced return of capital offering with an increased base dividend and an updated framework, as previously announced.
• Achieved strong IP30 rate of 900 boe/d per well, comprised primarily of liquids, on second fully operated pad in Kaybob Duvernay.
• Established new targets to reduce scope 1 and 2 emissions and freshwater use, as previously announced.

“Our second quarter results highlight our excess cash flow generation, continued operational execution and commitment to returning capital”, said Craig Bryksa, President and CEO of Crescent Point. “Upon attaining our near-term debt target, we announced our updated framework, which now targets to return the majority of our excess cash flow to shareholders. We remain focused on creating long-term value through a combination of returning capital while also enhancing the balance sheet strength and sustainability of the business.”

https://www.newswire.ca/news-releases/crescent-point-announces-q2-2022-results-854888506.html