Federal Reserve Raises Rates at FOMC Meeting; Big Tech Earnings and NASDAQ Rebalance Shake Markets; AI Impact Raises Concerns
The Federal Reserve recently held its July Federal Open Market Committee (FOMC) meeting and made the decision to raise key interest rates by 25 basis points. This move puts the federal funds rate at a 22-year high. The FOMC reiterated its goal of achieving maximum employment and inflation at a 2 percent rate over the longer run. To support these goals, the Committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent.
During the press conference that followed the meeting, Fed Chairman Jerome Powell emphasized that the FOMC has significantly tightened monetary policy since last year. Powell also mentioned that the full effects of these tightening measures are yet to be fully felt. Looking ahead, the Committee will continue to take a data-dependent approach in determining the extent of additional policy tightening that may be necessary.
Powell also addressed concerns about a potential recession, stating that while the staff forecast a noticeable slowdown in growth later this year, they are no longer predicting a recession due to the resilience of the economy.
Although the rate hike was not welcomed by everyone, there are some positive signs for investors. The two-year Treasury yield has decreased, indicating that the bond market believes the Fed is done raising rates. Some experts even believe that the Fed may start cutting rates as early as December, continuing into the next year.
In addition to the FOMC meeting, the earnings results of major tech companies, known as the Magnificent Seven, have been closely watched. Alphabet Inc., Meta Platforms Inc., and Microsoft Corporation have already released their earnings reports. Apple Inc., Amazon.com Inc., NVIDIA Corporation, and Tesla Inc. are set to reveal their latest numbers soon.
The NASDAQ also recently rebalanced its popular NASDAQ 100 index to address concentration issues. This rebalance aims to comply with the SEC diversification rule, which limits the aggregate weight of the largest stocks with 5% or more weightings to 50%. The rebalance was triggered by the fact that the seven aforementioned companies accounted for 50.9% of the NASDAQ 100 on June 3.
One of the contributing factors to the significant weightings of these tech companies in the index is the growing interest in artificial intelligence (AI). AI has become a hot topic as companies look for ways to incorporate it into their services and offerings. While AI presents great potential for growth, there are concerns about the negative impact it could have on various industries.
To address these concerns and help investors navigate the market, a special AI Impact Event was held. During the event, steps were discussed to AI-proof savings and retirement accounts. It is essential for investors to understand the disruptive nature of AI and adapt their investment strategies accordingly.
In summary, the Federal Reserve’s decision to raise rates at the FOMC meeting, the earnings reports of major tech companies, and the NASDAQ rebalance have all made waves in the market. Additionally, the impact of AI and its implications have raised concerns among investors. As the market continues to evolve, it is crucial for investors to stay informed and take appropriate steps to protect their portfolios.
