Fed Meeting – Watch What They Say Versus What They Do

Stocks finished the week mixed to higher with the tech-heavy Nasdaq Composite underperforming the broader market.

July 24, 2023

Performance for Week Ending 7.21.2023:

The Dow Jones Industrial Average (Dow) finished up 2.08%, the Standard & Poor’s 500 Index (S&P 500) added 0.69% and the Nasdaq Composite Index (NASDAQ) dipped 0.57%. Sector breadth was positive with 7 of the S&P sector groups closing the week higher and 4 closing lower. The Energy (+3.53%) sector led on the upside followed by the Healthcare (+3.46%) and Financials (+2.95%) sectors. The Communication Services (-3.01%) was the biggest loser.

Index* Closing Price 7/21/2023 Percentage Change for Week Ending 7/21/2023 Year-to-Date Percentage Change Through 7/21/2023
Dow 35227.69 +2.08% +6.28%
S&P 500 4536.34 +0.69% +18.15%
NASDAQ 14032.81 -0.57% +34.07%

*See below for Index Definitions

MARKET OBSERVATIONS: 7/17/23  – 7/21/23

Stocks finished the week mixed to higher with the tech-heavy Nasdaq Composite Index underperforming the broader market. The Dow led the gains and has now logged a 10-session winning streak, the longest since 2017. Driving the gains in the broader market was the better than feared start to second quarter earnings season. Through Friday, 87 members of the S&P 500 have reported Q2 results with 78% beating expectations. Aggregate earnings for the group are up over 5%, well ahead of the 8% decline that analysts are forecasting for the overall quarter. Earnings season will shift into high gear in the week ahead with 158 members of the S&P 500 scheduled to report results. The markets have done well in recent weeks on signs of an improving macro backdrop as inflation continues to decelerate, bringing the end of the Fed's rate hiking cycle into sight, and reducing the likelihood of a near-term recession.

Economic Data: The Commerce Department reported retail sales rose by +0.2% in June down from an upwardly revised +0.5% in May and short of economists forecast for a +0.5% gain. On a positive note, the so-called control group sales — which are used to calculate gross domestic product (GDP) and exclude food services, auto dealers, building materials stores and gasoline stations — accelerated to a 0.6% advance, twice the prior month’s gain. Meanwhile, industrial production came in weaker than expected in June reflecting a decline in manufacturing output against a backdrop of uneven goods demand. The June index of production at factories, mines and utilities decreased 0.5% for a second month. Manufacturing output declined 0.3% in June, the most in three months. After steadily advancing from 2020 through early 2022, the Fed’s gauge of manufacturing output is now down 0.3% from a year ago. US homebuilder sentiment rose in July to the highest level in 13 months as buyers continued to opt for new construction amid a tight housing supply. The National Association of Home Builders/Wells Fargo gauge increased for a seventh-straight month, to 56 from 55 in June. Despite the improvement in sentiment, the homebuilder index remains below end-of-2021 levels, when mortgage rates were lower. New home construction in the US retreated in June after surging a month earlier, to a pace that still indicates builders are working to fill the void left by lean housing inventory in the resale market. Residential starts fell 8% last month to a 1.43 million annualized rate. Building permits, a proxy for future construction, slipped 3.7% to an annualized pace of 1.44 million units. However, permits to build single-family homes increased to a one-year high.

The Week Ahead: The focal point for the upcoming week will be the two-day FOMC meeting. According to Bloomberg’s World Interest Rate Probability tool, futures markets are discounting a 96% probability of a 25-basis point rate hike at the conclusion of Wednesday’s meeting. While a rate hike is all but a done deal, this meeting will be less about what they do and more about what they say. It’s unlikely the Fed will state that the rate hiking cycle has concluded, but they are expected to underscore that future policy decisions will be data dependent. There will be two more consumer price index reports ahead of the next FOMC meeting and the Fed will want to maintain optionality in the event that pricing pressures resurface. Highlights of the data calendar include the preliminary Q2 GDP reading on Thursday as well as the employment cost index and personal income and spending on Friday. Others in focus will include Conference Board's consumer confidence gauge on Tuesday and durable goods orders on Thursday. It will be a busy week on the earnings front with 158 members of the S&P 500 scheduled to report results. Amongst this group are twelve members of the Dow Jones Industrial Average.

NOTE: The next edition of the Weekly Viewpoint will be published on Monday, August 14.

— By Michael Schwager, Chief Market Strategist, Managing Director


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

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