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What’s driving markets

The Dow Jones Industrial Average is on an 11-session winning streak, its best run in more than six years, as hopes build that the Federal Reserve’s remaining interest rate hikes this year will not cause a recession as inflation cools.

Whether the Dow can make it an even dozen days of gains and extend its rally even further to fresh 15-month highs will likely depend on the next few days containing corporate earnings reports and Fed comments.

Dow components 3M
MMM,
+5.58%
and Verizon Communications Inc.
VZ,
+0.60%
both reported results before the bell. So did big name companies like General Electric
GE,
+5.97%
and General Motors
GM,
-4.44%.

After the bell, come Microsoft
MSFT,
+1.18%
and Visa
V,
-0.28%,
with non-Dow member Alphabet
GOOG,
+0.11%
also a highlight. Coca-Cola
KO,
-0.23%
and Boeing
BA,
-1.67%
are among those Dow members presenting their numbers on Wednesday.

Investors will be want to hear from Alphabet and Microsoft about their cloud businesses, the ongoing impact and use of artificial intelligence and their general outlooks for American and global markets, David Sekera, chief U.S. market strategist at Morningstar, said in a phone interview.

Meanwhile, equity markets are in “a little bit of a holding period” ahead of the events to come, he noted.

Read also: IMF sees signs global economy is headed in the right direction

Wednesday also sees the Fed’s latest monetary policy decision. The market is certain the central bank will increase its policy interest rate by another 25 basis points to a range of 5.25% to 5.50%.

But investors are less sure of whether that will be the last hike of the current cycle, so the Fed’s accompanying statement and what Chair Jerome Powell says at his press conference will be the main drivers of bonds, equities and forex around the event.

“Our view is the Fed is one and done,” Sekera said. Even with expectations that central banks will continue to “talk tough” on inflation, Sekera said Morningstar’s base case is that July’s 25-basis point hike is the last, while inflation continues to cool over the second half of the year. Rate cuts could occur as early as February, he said.

At Vanguard, Andrew Patterson, senior international economist, said in a note that the Fed could reach its terminal rate “with 1 or 2 more hikes.” The central bank is “likely to remain on hold through at least the end of the year.  If inflation proves persistent, this may be a sign of a higher neutral rate and the Fed may need to go to 6% or beyond in order to bring inflation back to target,” he said.

Others think there’s more rate hikes to go. “There is a great chance that the Fed will spoil your mood if you are among those thinking that this week’s rate hike will be the last for this tightening cycle in the U.S.,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Read also: ‘No chance we’re having a soft landing’: Stock-market strategist David Rosenberg gives Powell’s Fed no credit — and no mercy

Meanwhile, helping underpin sentiment on Tuesday was a rebound in Chinese stocks, notably property developers after Beijing signaled support for the heavily-indebted sector.

In other economic data Tuesday, home prices increased for the fourth consecutive month in May, according to the S&P Case-Shiller Index. May’s strongest price gains were in Midwest cities, but the overall gains underscore the ongoing lack of supply of homes.

While home prices are rising, so is consumer confidence. One gauge on consumer sentiment reached a two-year high, according to data out Tuesday. The Conference Board’s index for July increased to 117.0, which was above economists’ expectations and up from a revised 110.1 last month.

While mood is brightening, the index is still below pre-pandemic levels as consumers contend with the toll of high prices and rising interest rates.

Companies in focus

• General Electric Co.
  GE,
  +5.97%
  shares up more than 6% and approaching a nearly five-year high after second quarter results from the aerospace and renewable energy company that topped expectation. The company reported net income of $946 million, or 86 cents per share, from a loss of $1.25 billion, or $1.13 a share one year ago, while free cash flow and revenue also beat estimates.

• Verizon Communications Inc.
  VZ,
  +0.60%
   shares are up more than 0.7% after the telecommunications company topped profit expectations in its latest earnings but came just below revenue expectations. The company reported $1.21 earnings per share, above FactSet consensus for $1.17 earnings per share.

• General Motors Co.
  GM,
  -4.44%
  shares are more than 3% lower after the car maker delivered better than expected second quarter earnings and raised its guidance. The company had adjusted earnings per share of $1.91, topping the $1.86 consensus according to FactSet.  

• 3M Co.
  MMM,
  +5.58%
  shares are more than 6% higher Tuesday after results showing the company booked a loss in connection with a litigation settlement over “forever chemicals.” But taking away the one-time charge, the company still topped adjusted profit expectations and raised its full-year outlook.

• Spotify Technology
  SPOT,
  -13.68%
  shares tumbled about 12% Tuesday after the streaming giant easily surpassed subscriber-growth expectations for its latest quarter but failed to sport upside on its key financials.