U.S. Equities Higher
The major market indexes finished the month well into the green. A sharp rebound for stocks in July came as expectations concerning slowing growth has some investors believing the Federal Reserve (Fed) will have to scale back interest rate increases later this year. In addition, with the majority of the S&P having reported Q2 earnings so far, well over half of companies have beaten their consensus estimates. This is better than many investors anticipated amid the present inflationary landscape. All sectors had a strong showing, with consumer discretionary leading the pack on the back of Tesla and Amazon’s better than expected earnings.
U.S. Economic Data Recap
Inflation: June headline inflation rose over 9% from a year ago. This was above consensus estimates. Key drivers were the large increase in energy prices last month and an increase in transportation costs. June gas prices were up 60% from a year ago and over 10% month-over- month. Excluding food and energy, the CPI rose close to 6% year-over-year and at a slightly slower pace from May.
U.S. employment: In July, the U.S. economy added over 500,000 jobs as the unemployment rate fell to 3.5%. Economists expected job growth would total just 250,000 last month. Because of last Friday’s employment report, market participants believe that the Federal Reserve is on track to continue its hawkish monetary policy, likely increasing rates by 0.75% in September.
July witnessed a solid rebound for equities amid a pessimistic economic landscape. Long-term investors who stayed with their investment plan were rewarded in July after the first half of 2022 yielded the worst six month for stocks since 1970. An aggressive Federal Reserve with a mixed, to poor, track record of navigating a soft landing, stagflation, China economic concerns, disrupted supply chains, overly optimistic earnings estimates, and the ongoing Russia-Ukraine war, gave a lot for investors to ponder.
Two major factors aided equities this past month. First, the belief that inflation may have reached its peak given the Fed’s hawkish sentiment, as well as the major pullback in commodity prices which helped sentiment and will feed into lower inflation data with a lag. Also, corporate earnings, which is the major cause of long-term stock appreciation, came in better than expected amid inflation and geopolitical concerns. This all being said, we recognize that inflation is still a major factor, as even if inflation has peaked it will still be at extremely elevated levels, and as such we will be keeping a close eye on this for the rest of 2022.
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