The bullish sentiment returned to Wall Street last week, with all major equity averages closing sharply higher and helping July become the best month since 2020.

Stock market bulls got their cue from several factors, like earnings from Apple and Amazon, which beat the scaled-back analyst expectations. They confirmed that these tech giants could survive and thrive in a challenging environment of rising inflation and interest rates.

Then there was a well-anticipated 75-point basis hike in the Fed Funds Rate, reassuring Wall Street that the nation's central bank is serious about getting inflation under control. At the same time, Chairman Jerome Powell's dovish tone raised expectations of a quick end to interest rate hikes.

"The 75-basis point rate increase by the Fed was fully anticipated," Robert R. Johnson, a business professor at Creighton University, told International Business Times in an email. “What wasn't anticipated was Powell's more dovish comments in his press conference following the announcement. Market participants were positively surprised by Powell saying that 'current interest rates are close to neutral.' These comments sent stocks soaring as investors believed that interest rates may not have to increase much further, despite the historically high inflation numbers. While last month's inflation numbers were running hot, while July numbers should be considerably lower as oil and other commodity prices have recently fallen."

And there was the second quarter of 2022 preliminary GDP report, which showed that the economy contracted by 0.9% from the previous quarter, while the core PCE came at 4.4%, down from 5.2% in the first quarter.

These numbers supported the thesis that the economy is beginning to correct itself for inflation and that the Fed could be somewhat near the end of hiking interest rates. Thus, the Treasury bond yields dropped, which supported the rally in risky assets.

In addition, a eurozone report showed that the euro economy continues to grow despite the soaring inflation and the Russian-Ukraine war. The region's Gross Domestic Product (GDP) for the first quarter of 2022 rose by 0.7%, beating expectations of a 0.2% gain. And that helped the euro regain some ground it lost against the dollar in the previous weeks.

Equity traders and investors liked that, too. A growing eurozone makes it less likely that the global economy will enter a synchronous recession, which could hurt the earnings of corporate giants with significant exposure to overseas markets. Moreover, the weakening of the dollar raised hopes of a favorable translation of future earnings for these companies.

Still, the bullish Wall Street sentiment should be tempered by the multi-year high inflation, which requires further interest rate hikes from central banks worldwide, both on the short-term and the long-term side of the yield curve. And that could hurt corporate earnings of interest-sensitive sectors, including the energy and materials sectors, which have been leading the end of pandemic lockdowns rally.

In addition, the rising interest rates and the drying up of liquidity could take their toll on risky assets, like smaller profitless companies trading on NASDAQ and cryptocurrencies, which have no intrinsic value.

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