Stocks end July with the strongest month since 2020

Ed Mertiri |

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What Investors Should Focus On the Rest of Summer

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The S&P 500 ended July with a remarkable week (up 5.7%) and its best monthly performance since 2020 (up 5.9%). Stocks ended higher even in the face of disappointing earnings reports for Q2. Amazon led Friday’s rally, up 10.4% for the day, after a blockbuster 2nd quarter report, beating analysts’ expectations. Amazon is the fourth largest company in the S&P 500 and therefore has an outsized contribution on the index’s performance.

Last week included several negative data points. The 2Nd quarter GDP report confirmed the US is in a technical recession, defined by two consecutive quarters of contracting or negative growth. The PCE, the Federal Reserve’s preferred inflation indicator reported June had the highest inflation since 1982. Over half the S&P 500 companies have reported 2nd quarter results, with 75% beating expectations. This is slightly below the 5-year average of 77%. More importantly, expectations for the 3rd and 4th quarters have been steadily declining as companies issue lower guidance. Despite these results, investor sentiment greatly improved, mostly attributed to the Federal Reserve’s monthly meeting and press conference.

The Federal Reserve announced another 75bps rate increase, as was widely expected. Chairman Powell’s comments were interpreted to be more positive or dovish than previous meetings which sent bond yields down. There is still an inversion between the 1-to-3-year treasuries and the 10-year. However, the 5 and 7-year now have the same yield as the 10-year, decreasing the magnitude of the inverted yield curve. This indicates that investors feel a prolonged recession is less likely.

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