Dow Jones Industrial Average rises on slight optimism from Powell but gains prove unsustainable

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• Dow Jones rises after the Fed executes a 0.25% hike at its meeting on Wednesday – as expected.
• The index rose intitially, clocking 0.35% gains but then fell flat soon after.
• Dow component earnings results have been mixed so far this week with plenty still to report.

The Dow Jones Industrial Average (DJIA) rose strongly in reaction to the highly-anticipated Federal Reserve (Fed) meeting on Wednesday but then fell flat once the event was over. The index jerked higher by 0.35% during Fed Chairman Powell’s press conference but gave back gains and was trading flat for the day at the time of writing.

At the meeting the Fed decided to execute a 0.25% hike, as widely expected, bringing the Fed Funds target rate to 5.25-5.50%, its highest level for 22-years.

The accompanying statement shed little additional light on the decision – already priced in by the market – since it did not deviate in its wording from the statement in June.

In his press conference afterwards Fed Chairman Powell made some positive comments about inflation coming down and the resilience of the job market which suggested the Fed might adopt a less hawkish approach in the future and may be the reason for the rise in in the DJIA. 

Powell noted, for example, that, “It is a good thing headline inflation has come down so much,” and added, “Unemployment rate at same level as lift off is real blessing.”

Yet at the same time he stressed more needed to be done to bring inflation back down to the Fed’s 2% target, saying “Core inflation is still pretty elevated,” and “We’re going to need to hold policy at restrictive levels for some time.”

The US Dollar sold-off initially as stock markets rallied. The tone of Powell’s press conference and lack of any new hawkish messaging in the statement were both interpreted by investors as indicating the possibility the Fed may adopt a less aggressive approach going forward. It suggested interest rates might come down sooner than thought – a positive for companies straining under higher interest repayments on their debts, as well as higher financing costs to fund new projects. 

Dow’r earnings mixed with Coca-Cola

Dow components Visa and Verizon offered up mixed results on Tuesday. Both companies beat adjusted earnings forecasts but missed on GAAP results. Verizon also underperformed the consensus expectation for revenue.

Yet Coca-Cola (KO) bested Wall Street consensus with its second-quarter results early Wednesday, but shares of the soft drink maker slid regardless.

Major Dow components have already released second-quarter earnings this week. Microsoft (MSFT) easily surpassed Wall Street consensus on Tuesday, but a decline in cloud revenue growth hurt the share price. MSFT stock sold off 3.6% in Wednesday’s premarket.

McDonald’s (MCD) and Intel (INTC) announce results on Thursday. On Friday, Chevron (CVX) and Procter & Gamble (PG) finish off the wee

• McDonald’s is expected to earn $2.79 in GAAP EPS on $6.29 billion in revenue.
• Intel is expected to lose $0.51 in GAAP EPS on $12.14 billion in sales.
• Procter & Gamble is expected to earn $1.33 in GAAP EPS on $19.99 billion in sales.
• Chevron is expected to earn $3.16 per share on $49.98 billion in sales.