Shares rise higher after bank income, fears of interest rate increases decrease
The bright mood reflects a belief that the central bank will not escalate an already aggressive plan to raise interest rates to curb burning inflation. After the Bureau of Labor Statistics released data last week showing that inflation was 9.1 percent higher in June than a year ago, many market observers worried that the Fed could choose to raise interest rates by a full percentage point, or 100 basis points, in July. 27-28 meetings instead of the generally expected 0.75 percentage points.
An increase of 100 basis points would be a big leap, because the Fed has not raised interest rates that much since the early 1990s. It will also show a clear rise from earlier this year, and feed the Fed’s critics who have claimed that officials acted too slowly to meet rising price increases, and only now is inflation fighting from behind.
But the criticism and the rise in interest rates reflect the Fed’s delicate balancing act. Although interest rate hikes are designed to cool the economy, they can also tip it into a recession by slowing economic activity too sharply and with too much speed. As Fed officials have acknowledged, the need to bring price stability could come at the expense of weak growth and layoffs.
Central bankers have already raised interest rates three times this year: a quarter point in March, a half point in May and three quarter points in June, and surprised some on Wall Street.
The latest monthly job report showed that the US labor market maintained its rapid pace in June, keeping unemployment at a low 3.6 percent. In addition, the company’s earnings and consumption expenses have remained robust, which highlights the conflicting signals that officials and analysts analyze to get a sense of where the economy is heading.
Volatility may increase this week as Wall Street draws attention to corporate earnings.
On Monday, Goldman Sachs reported better-than-expected quarterly results before opening time. Although revenue fell 23 percent, to $ 11.86 billion, it was $ 1 billion more than analyst estimates, thanks to a 55 percent increase in interest income, including government and corporate bonds. The result fell 48 percent to $ 2.79 billion as a result of an industry-wide decline in investment banking activities. Goldman shares rose 3.6 percent
Bank of America, meanwhile, reported a 5.6 percent jump in revenue, to $ 22.79 billion against forecasts of $ 22.67 billion. The bank profited from rising interest rates, pushing net interest income up 22 per cent. But profits fell 32 percent to $ 6.25 billion in the second quarter. The stock fell 1 percent.
Results will roll in from Charles Schwab and IBM later Monday, and from Netflix, Johnson & Johnson, Tesla, Twitter and a number of other companies in the coming days.
High fuel costs also weigh heavily on corporate America. Delta, the first major airline to report earnings in the second quarter, posted a quarterly profit as travelers opted for higher airfares. Fuel prices for Delta rose 37 percent, compared with the previous three-month period. The airline said it has hired 18,000 employees since the start of 2021, bringing staffing to 95 percent of the pre-pandemic level. However, even with the increase in employment, passengers are struggling with extensive cancellations of flights. American Airlines and United Airlines will report revenue later this week and Southwest records at the end of the month.
The global economic outlook has worried investors with signs of recession amid rising inflation, putting central banks in the spotlight. The European Central Bank will meet on Thursday as the eurozone reels from high inflation, a brewing energy crisis and other setbacks from the Russian invasion of Ukraine. The bank is expected to raise interest rates for the first time in 11 years.
Some economic data show signs of decline, especially in the once red-hot housing market, reflecting the consequences of higher interest rates, which make loans more expensive for businesses and consumers.
Confidence among detached house builders plummeted this month, according to a new survey. The National Association of Home Builders / Wells Fargo Housing Market Index, a monthly glimpse of market conditions, showed that sentiment fell to levels not seen since the pandemic’s first summer, when the public health crisis hit the national economy. House building confidence fell by 12 points compared to June’s figures, and follows a declining path that began in March, when the Fed began to raise interest rates.
The cooling housing market reflects broader changes in the economy as decision-makers work to control inflation. Near-zero interest rates in 2020 and 2021 helped feed the housing market and coincided with record-breaking gains on Wall Street.
