The market didn’t throw a temper tantrum based on what happened at last week’s G7 meeting, but the historic agreement between the U.S. and North Korea to denuclearize the Korean peninsula couldn’t lift the bullish spirit as the Fed signaled that there will be one more rate hike this year.
The Q2 earnings season is coming to an end, but we still saw some impressive corporate earnings reports this week, and most large-cap companies we cover posted better-than-expected EPS compared to last year. However, the news of core inflation reaching 2.2% rang the alarm bells that the Fed might not be able to tolerate inflation much longer and a rate hike was much anticipated on Wednesday.
However, the Fed sounded more hawkish and promised to hike rates four times in 2018 instead of three, and it further flattened the yield curve as the 2-year Treasury bond jumped to 2.57%.
In summary, President Trump’s initiative to reduce tensions with North Korea definitely stole the limelight, but the Fed’s decision to keep raising rates sets the direction of the economy this week and for months to come.
Be sure to check out our previous week’s edition here, in which investors focused on the fact that there are now more jobs than unemployed workers in the U.S.