The US Federal Reserve (Fed) raised interest rates by another quarter of a percentage point to bring its benchmark overnight rate to a range of 5.25% to 5.5% on Wednesday in a move anticipated by market participants. Markets barely budged following the announcement as the rate hike had already been largely priced in.
The Fed raised rates for an eleventh time in its last 12 policy meetings after leaving rates unchanged last month. Despite falling inflation, Fed Chair Jerome Powell emphasized that the economy and labour market both needed to weaken in order for inflation to return to the central bank’s 2% target and remain at that level. The Fed will have ample time to observe the effects of its recent policy decisions as the next meeting is eight weeks from now. Despite the fastest hiking cycle in decades, unemployment in the US is at low 3.6% and consumer spending has remained strong. New personal consumption expenditures data – a measure of inflation preferred by the Fed – is set for release on Friday.
In New York, stocks reacted little to the Fed decision on Wednesday. At the close of the session, the Dow Jones Industrial stood 0.23% higher at 35,520.12 points. The broad S&P 500 lost 0.02% to finish at 4566.75 points. The tech-heavy Nasdaq-100 closed at 15,499.27 points, down 0.40% from the previous day.
In individual stocks, tech stocks were on the move Wednesday, after Google parent company Alphabet and software giant Microsoft reported earnings the day before. Alphabet shares gained 5.78% on Wednesday after reporting late Tuesday that second-quarter revenue rose 7% on the year and cloud revenue was up 28%. US tech peer Microsoft’s shares lost 3.76 % also after releasing quarterly results at the close of trading a day earlier. Tech earnings continued with Meta late Wednesday. The social media company reported 11% revenue growth in the second quarter when compared with the same period a year earlier and issued a third-quarter revenue outlook above market expectations. The company’s shares were trading higher in after-hour trading.
In Asia, stock markets were on the rise Thursday after the Fed decision. In Tokyo, the Nikkei 225 gained 0.7% and in South Korea, the Kospi was trading up 0.6%. In Australia, the S&P/ASX 200 was up 0.8%. Hong Kong's Hang Seng Index jumped 1.5%, while the Shanghai Composite was up just 0.2%.
Corporate news in focus: Earnings figures from Holcim, Schneider Electric, Roche, Mercedes-Benz, Air Liquide, Nestle, Volkswagen, Bristol Myers Squibb, TotalEnergies, Shell, Linde, McDonald's, Intel.
Economic data in focus: ECB interest rate decision (14:15 CET), US gross domestic product (14:30).
All about global economic and market trends at a glance
You can also follow us on Facebook or LinkedIn – or visit Insights and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.
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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.
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Unless otherwise stated or specified, the rates used in the analysis are normally the share prices provided by the news agencies Reuters and/or Bloomberg at the close of the stock exchange of the domestic market of the analyzed security or the relevant principal market of this security on the respective local stock exchange on the eve of the day of compilation.
Explanation of investment recommendations for stocks
We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).
Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.
Explanation of investment recommendations for bonds
We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.
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