The Federal Reserve has become predictable. That’s a good thing. Smart investors dislike surprises. If you want excitement, go to Vegas.

At the conclusion of its two-day meeting Wednesday, the Fed’s policy-making Federal Open Market Committee (FOMC) hiked interest rates by another 0.25% (25 basis points). The move was widely expected.

The rate hike, the FOMC’s 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25%-5.50% range. The committee’s policy statement left the door open to yet another increase, contingent on what inflation data reveal moving forward.

At his customary post-announcement press conference, Fed Chair Jerome Powell acknowledged that the consumer price and producer price indices for June showed decelerating inflation. However, Powell said the trend still isn’t conclusive enough for the Fed to ease up. He noted that core inflation remains elevated and the Fed needs to see inflation “durably down.”

Powell indicated that the FOMC’s September decision on rates could be another hike or a pause, a blandly self-evident statement that’s sort of like saying water is wet.

Some economists argue that the Fed shouldn’t have raised rates again because inflation is markedly on the decline and a continuation of rate hikes is needlessly damaging the economy. Regardless, the Fed’s tightening cycle is obviously slowing down and approaching the end game.

Powell’s presser was notable for its lack of drama, which is an improvement from his pointedly hawkish performances in the past. He refrained from the tough love schtick.

On Wednesday, the main U.S. stock market indices came to a mixed and muted close as follows:

• DJIA: +0.23%
• S&P 500: -0.02%
• NASDAQ: -0.12%
• Russell 2000: +0.72%

Big Tech shines through…

There’s more to the markets than Powell’s oracular pronouncements. Let’s turn our attention to corporate earnings. The mega-cap Silicon Valley stalwarts are on a roll.

After the closing bell Wednesday, Facebook parent Meta Platforms (NSDQ: META) exceeded profit and revenue expectations for the second quarter of 2023.

After the closing bell Tuesday, we also got report cards from Alphabet (NSDQ: GOOGL) and Microsoft (NSDQ: MSFT).

Alphabet’s second-quarter operating results handily beat Wall Street’s expectations on the top and bottom lines.

Microsoft’s fiscal fourth-quarter earnings and revenues topped estimates, although those positive results were somewhat overshadowed by a sequential decline in Azure cloud revenue growth.

The hope is that Big Tech earnings will keep the stock market rally alive, because overall expectations for the S&P 500 are less than stellar.

For Q2 2023, the blended year-over-year earnings decline for the S&P 500 is -9.0%, according to research firm FactSet. “Blended” combines actual and expected results. If -9.0% turns out to be the actual decline for the quarter, it will mark the largest earnings decline reported by the index since Q2 2020, at -31.6%.

On June 30, the estimated earnings decline for Q2 2023 was -7.0%, but analysts have gotten more pessimistic, due to negative earnings surprises or downward revisions to estimates.

Six of the 11 S&P 500 sectors are reporting year-over-year earnings growth, led by consumer discretionary and communication services. Five sectors are reporting, or are expected to report, a year-over-year decline in earnings, led by energy, materials, and health care.

However, the energy sector seems destined for better days in the near future. The latest estimates for the sector call for tightening crude oil supply combined with increasing demand. OPEC+ production cuts have come amid improving prospects for economic growth. That’s a recipe for higher oil prices, a dynamic that’s already kicking in (see chart).

That said, the oil price equation depends in large part on China’s economy, which has been sputtering. Mainland China is currently the largest importer of crude oil in the world.

One headwind for the stock market is declining net profit margins among S&P 500 companies, a consequence of inflation. To date, the blended net profit margin for the S&P 500 for Q2 2023 is 11.1%, which is below the previous quarter’s net profit margin of 11.5%, below the year-ago net profit margin of 12.2%, and below the five-year average of 11.4%.

If 11.1% turns out to be the actual net profit margin for the quarter, it will mark the sixth consecutive quarter in which the net profit margin for the index has declined year-over-year.

The good news, though, is that declining inflation should eventually boost those margins. Analysts currently estimate that net profit margins for the S&P 500 will be higher in future quarters. The estimated net profit margin for Q3 2023 and Q4 2023 currently is 11.7% for each quarter.

WATCH THIS VIDEO: Making Sense of the Market’s Mixed Signals

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John Persinos is the editorial director of Investing Daily.

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