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Stock Market News for Jul 29, 2022

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Wall Street closed sharply higher on Thursday despite a strong recession indication. Market participants considered recent slowness in GDP growth rate as a welcome sign since Fed Chairman already indicted that the central bank may reduce the pace of rate hike going forward depending on data. All the three major stock indexes ended in positive territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) advanced 1% or 332.04 points to close at 32,529.63, marking the highest closing of the blue-chip index in nearly seven weeks.  Notably, 24 components of the 30-stock index ended in positive territory while 5 in red and one remained unchanged.

The tech-heavy Nasdaq Composite finished at 12,162.59, rising 1.1% or 130.17 points due to strong performance of large-cap technology stocks.

The S&P 500 gained 1.2% to end at 4,072.43, reflecting the highest closing of the blue-chip index in nearly seven weeks. Ten out of 11 broad sectors of the index closed in positive zone. The utilities Select Sector SPDR (XLU), the Real estate Select Sector SPDR (XLRE) and the Industrials Select Sector SPDR (XLI) rallied 3.6%, 3.7% and 2.1%, respectively.

The largest gainer of the index was Constellation Energy Corp. (CEG - Free Report) , shares of which soared 16.3%. Constellation Energy carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The fear-gauge CBOE Volatility Index (VIX) was down 3.9% to 22.33. A total of 11.21 billion shares were traded Thursday, higher than the last 20-session average of 10.86 billion. Advancers outnumbered decliners on the NYSE by a 3.56-to-1 ratio. On Nasdaq, a 1.66-to-1 ratio favored advancing issues.

U.S. GDP Contracts for Two Straight Quarters

The Department of Commerce reported that the U.S. GDP growth rate declined 0.9% in the second quarter of 2022. The consensus estimate was for an increase of 0.3%. Notably, the U.S. GDP contracted 1.6% in the first-quarter. The decline of the GDP growth rate for two consecutive quarters is generally considered as a strong sign for recession.

However, Treasury Secretary Janet Yellen said that the economy is not in recession. She said recession is a “broad-based weakening of our economy.” Yellen said that a recession means substantial layoffs, business closures, strains in household finances and a slowdown in private sector activity. But none of these symptoms are visible now.

Rate Hike In Line With Expectation

On Jul 27, after the conclusion of the July FOMC meeting, Fed Chairman Jerome Powell in his statement said that the central bank has decided to raise the Fed Fund rate by another 75 basis points after June. As a result, the range of the benchmark interest rate has gone up to 2.25 -2.50%. The moves in June and July represent the most stringent consecutive action since early 1990s.

Most importantly, Fed Chairman has indicated that the central bank may reduce the magnitude of rate hike going forward if data becomes favorable. According to Powell, “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.” The next FOMC meeting will be on September.

Moreover, the fed Chair said that he does not think the economy is in recession or will be in recession in near future. “Think about what a recession is. It’s a broad-based decline across many industries that’s sustained more than a couple of months. This doesn’t seem like that now. The real reason is the labor market has been such a strong signal of economic strength that it makes you question the GDP data,” Powell said.

Economic Data

The Department of Labor reported that the weekly jobless claims fell by 5,000 to 256,000 for the week ended Jul 23. The consensus estimate was 251,000. Data for the week ended Jul 16 was revised upward to 261,000 from 251,000 reported earlier. The four-week average of initial claims increased by 6,250 to 249,250, marking the eight-straight weekly gains. However, continuing claims (those who have received government benefit at least one time and reported one week lag) dropped by 25,000 to 1.36 million.


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