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Market Recap 

Sorry for the absence last week, decided to take a little break from writing the daily recap, but back now!

Stocks finished a boring session mixed as market participants look ahead to the busiest week of the quarter for corporate earnings and the Federal Reserve’s interest rate decision on Wednesday. When the closing bell rang, the S&P 500 was up 0.1%, the Dow gained 0.3%, and the tech-heavy Nasdaq was the laggard, falling some 0.4%.

The Nasdaq Composite and S&P 500 are up an impressive 7.5% and 4.8%, respectively, so far this month. Shares of meme stock darlings GameStop and AMC have jumped 17% and 14.5%, respectively, as traders embrace the risk-on backdrop. Even 2022 laggard Netflix has seen its stock rise 25% month to date, even after another lackluster earnings report on July 19.

That said, the specter of inflation and a potential recession remain elevated.  the Bureau of Labor Statistics showed that headline inflation continues to accelerate from already elevated levels. The consumer price index (CPI) rose a whooping 9.1% year-over-year, another drastic acceleration from the already-elevated 8.6% reported last month and higher than estimates of 8.8%. “Core” CPI, which excludes the more volatile food and energy components, rose 5.9% in June, compared to 6.0% in May. Economists expected a 5.7% increase in this measure.

These figures confirm another 75 basis point hike to the interest rate at the conclusion of the July 27 policy meeting, with some even speculating the Fed may be forced to consider a dramatic 100 basis point hike. 

Michael Pearce, senior US economist at Capital Economics, said “Overall, this report confirms that the Fed will need to hike by 75bp again at the end-July meeting. While some will draw parallels with the shockingly bad May CPI report, the backdrop is markedly different — commodity prices have fallen sharply and we’ve seen clearer signs of an economic slowdown, both of which will contribute to weaker price pressures ahead.”

Furthermore, this week’s second quarter GDP print may show growth contracted once again to follow a 1.6% first quarter GDP drop. Two quarters of negative growth are generally indicative of a recession, and that would run counter to the upbeat tone currently playing out in markets.

In the coming days, quarterly results from over 150 companies in the S&P 500 are expected, with Wednesday’s policy announcement from the Federal Reserve and Thursday’s GDP data also expected to move markets. On Tuesday, headline earnings will include results from McDonald’s (MCD), Alphabet (GOOG), and Microsoft (MSFT).

“Always bear in mind that your own resolution to success is more important than any other one thing.” –Abraham Lincoln