The Fed hiked interest rates by 0.75 percentage points on Wednesday, as expected, and stated in a statement that more rises are inevitable. In reaction, bank stocks rallied: all six major US banks were trading higher on Wednesday, with Citigroup up approximately 0.8%. None, though, surged as much as the S&P 500, which gained nearly 2%.

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Shareholders may be delighted with even tiny returns. Higher interest rates are expected to benefit banks by making lending more profitable, but this year’s trade results do not support the premise. Fears about an impending recession have caused the KBW Nasdaq Bank Index to fall almost 20% in 2022.

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Indexes in the United States rose as a result of positive earnings reports. The S&P 500 was up nearly 2% while the tech-heavy Nasdaq Composite was up 3.47% and Dow Jones Industrial Average was up 1.19%.

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They were at 1.5%, 2.6%, and 0.4%, respectively, shortly after the announcement.

The 10-year Treasury yield, which was at 2.765%  prior to the announcement, was at the same level.

Also Read | Fed raises benchmark interest rate to fight high inflation

Stocks are on the way to ending July on a positive note. However, many investors don’t expect the gains to be long-lasting. Investors have been highly concerned that the Fed could lead the US economy into a recession through tighter policy. Second-quarter gross domestic product (GDP) data on Thursday will provide insights into the economy’s recent performance. 

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Investors are also watching earnings reports this week, the busiest week of the earnings season, for hints about how companies are surviving decades-high inflation.