Morning in New York: Fed gives dovish signal

Daily review and forecast of events on the U.S. stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

Market sentiment this Friday will be largely determined by an unexpectedly dovish speech by Christopher Waller, a member of the Fed's Board of Governors, who actually called for a 25bp cut in the key rate at the July 29-30 meeting. He argued that the impact of rates on inflation will be temporary, economic growth slowed to 1% in the first half of the year, and the labor market, despite low unemployment, is already showing signs of weakening, especially in the private sector. The view expressed by Waller, as one of the most influential representatives of the Fed's leadership, looks like a direct signal of the regulator's readiness to ease monetary policy;

Against this background, the publication of today's macro statistics is of particular importance. The data on housing construction for June (consensus: +3.5% m/m, previous value: -9.8% m/m) and the preliminary estimate of the consumer sentiment index from the University of Michigan for July (consensus: 61.4 points, previous value: 60.7 points) will be released. After Waller's speech, the market will be especially sensitive to weak data: if the statistics confirms his theses about the slowing economy, it will only strengthen investors' confidence in the imminent rate cut and may trigger a rally of risky assets;

In a significant event for the investment community, the House of Representatives passed a historic bill to regulate cryptocurrencies. By an overwhelming majority of votes (308 to 122), the Stablecoin Bill (GENIUS Act) was approved and will be signed into law this afternoon. The Act establishes clear federal rules for issuers of stackablecoins, including a 1:1 requirement for full provisioning from low-risk assets and regulatory oversight. In addition, the congressmen voted in favor of a broader crypto market structure bill (CLARITY Act) to be considered by the Senate. Approval of this legislation is a key step towards legitimizing digital assets in the U.S., as it removes regulatory uncertainty. This, in turn, lays the groundwork for the integration of stablecoins into the traditional financial system, as well as opens up prospects for significant growth of the segment and attracting institutional investments. 

Prior to the opening of the main session, a number of large companies including American Express (AXP), Charles Schwab (SCHW), Schlumberger (SLB), 3M (MMM), and regional banks Huntington Bancshares (HBAN), Truist Financial (TFC), and Regions Financial (RF) will release quarterly reports. 

US index futures are moving up on the back of Waller's comments. We assess the balance of risks as positive with expected moderate volatility. We focus on S&P 500 fluctuations in the range of 6235-6360 points (from -1% to +1% to the previous session's closing level).  

- Netflix (NFLX) second-quarter revenue rose nearly 16% YoY to $11.08 billion, with adjusted earnings per share (EPS) of $7.19, against the Factset consensus of $7.18. Despite the strong results and improved full-year revenue guidance, investors were wary of management's warning of lower operating margins in the second half of the year due to rising costs. Against this backdrop, the company's shares were down 1.8% after the close of main trading;

- Quotes of rail operator Norfolk Southern (NSC) rose 4.1% in the postmarket, reacting to news of preliminary talks with Union Pacific (UNP) on a merger that could create a transcontinental giant with a combined market capitalization of about $200 billion.  

- Although Interactive Brokers' (IBKR) second-quarter earnings per share (EPS) and revenue were $0.51 billion and $1.48 billion, respectively, according to the FactSet consensus, the brokerage's stock responded to the release with a post-market gain of more than 4.5%. The key positive drivers for the stock were strong operating results: the company's commission income increased by 27% YoY on the back of strong trading activity, while the number of client accounts increased by 32% YoY, indicating successful business expansion;

Trading on July 17 on the U.S. markets ended in the plus. S&P 500 and Nasdaq 100 updated historical highs, rising by 0.54% and 0.76% respectively.  Dow Jones added 0.52%, Russell 2000 rose by 1.2%. The main driver of growth was strong macroeconomic data, which supported investor optimism despite lingering uncertainty over trade tariffs. Shares of Nvidia (NVDA: +0.96%) moved higher supported by a strong TSMC (TSM) report that improved sentiment across the semiconductor industry. Overall volatility was low. Nine of the 11 sectors comprising the S&P 500 closed in positive territory. The financial sector (XLF: +0.96%) emerged as a growth leader amid optimism about banks, particularly regional banks, and investment companies. The healthcare industry (XLV: -1.14%) was the outsider amid a decline in the Elevance Health (ELV) guideline for profit for the year due to higher medical expenses;

The key event of the day was the publication of a block of strong macroeconomic statistics. Retail sales after a 0.9% decline in May rose by 0.6% m/m in June, while the consensus suggested an increase of only 0.1% m/m. This positive surprise interrupted the negative trend of the last two months and showed that US consumers are not yet scared of rising prices. Sales of automobiles (+1.2%), building materials (+0.9%) and apparel (+0.9%) were particularly strong.  

Other releases also confirmed the stability of the economy: the number of initial applications for unemployment benefits declined for the fifth week in a row. In the last reporting period it amounted to the lowest since April 221 thousand. The index of business activity from FRB Philadelphia in July unexpectedly rose to 15.9 points, interrupting a three-month decline;

The bond market reacted to the above macrodata with a decrease. According to market estimates, the probability of easing the MPC by the end of the year has decreased. Fed representatives continue to adhere to cautious rhetoric. Member of the Board of Governors Adriana Kugler said that she believes it is advisable to keep rates at the current level due to the risks of accelerating inflation due to import tariffs. At the same time, FRB San Francisco head Mary Daly suggested that two rate cuts before the end of the year are still possible.  

- Shares of electric vehicle maker Lucid Group (LCID: +36.2%) soared on news of a strategic partnership with Uber (UBER). The deal includes a $300 mln investment and the launch of a robotaxi. 

- A lower annual earnings forecast due to rising medical costs in the Medicaid and ACA segments caused Elevance Health (ELV: -12.2%). 

- GE Aerospace's (GE: -2.2%) quarterly revenue and free cash flow beat consensus. Management improved the guidance for the year, but the stock declined because investors' expectations of its report were too high. 

This article was AI-translated and verified by a human editor