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Markets Rise on Fed Minutes, Close Off Daily Highs

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The Dow broke a two-day losing streak today, while it joined the S&P 500 and Nasdaq closing in the green by the closing bell. We ended the session off intra-day highs, however, which came about following the Fed minutes from the latest FOMC meeting. The Dow finished +0.22%, the S&P +0.36% and the Nasdaq +0.35%. Only the small-cap Russell 2000 closed in the red today, -0.79%.

At 2pm ET today, the release of the FOMC minutes showed a hawkish, determined Fed clearly focused on bringing down inflation numbers by way of raising interest rates. As we know, the 75 basis point (bps) hike was the largest such move since Bill Clinton’s first term as president, 1994, with Fed members volleying between 50 and 75 bps in the June meeting, which commenced on the 15th of last month.

Further, the upcoming meeting in the final week of this month — which will be the last FOMC gathering until September — is expected to ratchet up either another 50 or 75 bps on the Fed funds rate, which would then bring it to 2.00-2.25% or 2.25-2.50% by August, from 0-0.25% in early March of this year. The Fed was clear in its minutes from this last meeting: it will do whatever it takes to bring inflation down, even if that means slowing the economy into recession.

Market participants shrugged this news off, as they appear to feel ahead of where the Fed was last month. And since this 75 bps move, we have seen bond yields and commodity prices tack notably downward, with oil shaking out as the last commodity to fall in our current environment. Perhaps the market feels everything the Fed expressed in these minutes has already been priced into equities as of today.

That said, we have Q2 earnings season on the near horizon, and without many top companies having established lowered guidance going into their earnings reports. Perhaps quarterly earnings and sales will manage to reach their earlier guidance for the most part — but what about for the rest of the year? If we’re really staring down recessionary conditions, we ought not expect stronger numbers in the second half of the year. And has the equities market priced that in yet?

Earlier today, we saw better-than-expected June Manufacturing data from both PMI and ISM: 52.7 and 55.3%, respectively, up from 51.4 and 54.0% expected. PMI grew from 51.6 month over month while ISM dipped from 55.9% in May. Both metrics above the 50 mark indicate growth; Manufacturing hasn’t had an issue being on the right side of 50 in quite some time.

JOLTS data also came out this morning, this time for the month of May. Here we see 11.3 million job openings that month, down from an upwardly revised 11.7 million from April but notably higher than expectations. Job quits came in flat from the downwardly revised previous month at 4.3 million.

These are still elevated numbers, indicating we’re not seeing the U.S. labor market drying up just yet. In fact, 4.3 million job quits in one month demonstrates a high level of confidence another job is awaiting an employee who quits a position.

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