Stock Market Ahead: What to Expect Next Week
July 31 2022 - 6:12PM
Finscreener.org
After a months-long market
correction, equities ended the month of July in the green. The
S&P 500 index and Dow Jones Industrial Average (DJIA)
reported the biggest monthly gains in July since November 2020,
while the tech-heavy Nasdaq composite index recorded its best July
ever. The Nasdaq Composite index is up 11.4% over the past month,
while the S&P 500 and DJIA registered 8% and 5.6% gains,
respectively.
What happened in July?
A combination of
better-than-expected earnings and relatively subdued rate hikes
triggered an impressive relief rally last week, allowing indexes to
end July with the biggest gains in over a year.
The red-hot inflation data
released earlier this month raised concerns regarding a supersized
rate hike of a full percentage point, intensifying the market
sell-off. However, the Fed stuck to its 0.75 basis points rate
hike, easing the aggressive rate hike concerns. As the
markets were positioned for a more combative rate hike this month,
the three-quarter percentage point rate hike came as a surprise to
investors.
This is not all. The
better-than-expected earnings reported by the big-tech and other
S&P 500 companies have restored faith in equities, sparking
a spectacular relief rally. Amazon’s
(NASDAQ:
AMZN) impressive earnings
report indicates optimism regarding consumer spending and easing
supply chain disruptions. Moreover, Apple’s
(NASDAQ: AAPL)
earnings in the last quarter also topped expectations, reflecting
the resilience of mega-caps.
Regarding this, Tom Mantione, a
managing director with UBS Private Wealth Management, said, “This
was a big week of economic data and earnings … earnings so far this
season have not been as bad as people anticipated.”
What now for investors and the S&P
500?
The markets are poised to open on
a bullish note this August. 148 S&P 500 companies are
gearing up to report their second-quarter earnings next week.
Leading health care companies such as Amgen
(NASDAQ: AMGN), Gilead Sciences
(NASDAQ:
GILD), and
Eli-Lilly (NYSE:
LLY) are slated to
release their quarterly earnings. As healthcare companies have
fared relatively well throughout this pandemic, investors are
somewhat optimistic about their upcoming results.
However, stock markets could go
in either direction next month, as the S&P 500 index has a
history of underperforming in August. Tech stocks, on the other
hand, have fared relatively well in August, as the Nasdaq composite
index has increased at an average 0.9% rate since 1995, according
to CFRA.
Sam Stovall, the chief investment
strategist at CFRA, recently said, “It’s a month that could go
either way because it has among the highest single monthly advances
while at the same time among the deepest single monthly
decline.”
Are recession woes over?
While the equity markets bounced
back primarily due to strong earnings reports, the macroeconomic
data paints a bleak picture. The U.S. GDP declined 0.9% in the
second quarter, following a 1.6% annualized decline in the first
quarter. Dow Jones consensus estimate indicated a 0.3% gain in the
previous quarter.
The GDP decline for two
consecutive quarters has sent a strong recession signal. However,
strong labor market and manufacturing levels indicate that the U.S.
is not yet in recession. As the Fed takes necessary steps to
facilitate a soft landing, analysts expect easing rate hikes in the
upcoming months.
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