Stocks saw a tepid final session in July as they remained mostly flat this morning, with investors getting ready for a jam-packed week of earnings and economic data.
The Dow barely moved from Friday’s close, while both the S&P and the Nasdaq Composite were similarly flat.
In a display of resilience, the broader market soared this month. The S&P climbed 2.9% and is currently on track to close out its fifth consecutive month in the green — a first since the seven-month rally that ended in August 2021. The tech-heavy Nasdaq Composite also increased by 3.9% so far in July, likewise heading for its fifth straight winning month.
The Dow actually outperformed the S&P but underperformed tech, surging 3% in July. Last week, this index matched its longest winning streak since 1987 with a 13-day streak of gains.
It was mostly driven by promising signals of a soft landing scenario, via a slew of “goldilocks” economic reports that reflected a robust labor market and slowing inflation. Q2 earnings, meanwhile, mostly surpassed expectations.
“Earnings coming in not as bad as feared, clearly that’s a good thing for the market,” commented Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance.
He further explained:
“Part of the reason the market’s rallied this whole month is that in addition to the good news to the economy that we’ve seen all year, we’re also seeing that corporate earnings really seem to have not been impacted as much as people have been concerned about.”
Even though the earnings season is over halfway through, Zaccarelli is specifically eyeing Thursday’s reports from tech giants Amazon and Apple, asserting that these could “set the tone” for the broader market.
“If they give really good guidance, we could see this bull market really continue to pick up speed and even see some momentum heading into the fall,” he said.
Last week, the Federal Reserve hiked interest rates to their highest point in more than two decades, following a highly-anticipated quarter-point increase. Fed Chair Jerome Powell emphasized that the central bank will make data-driven decisions on a “meeting-by-meeting” basis.
And they’ll have plenty to mull over following the week ahead, which is brimming with economic data and corporate earnings, starting with US payrolls on Friday. Prior to this, investors will look for cues from the JOLTs data on the state of the labor market and the Fed’s SLOOS (Senior Loan Officer Opinion Survey). The SLOOS could hint at the economy’s direction for the next 6-12 months. ISM manufacturing and services indices will be watched closely for insight into the momentum of the US economy, too.
Today’s Eurozone CPI and GDP prints were also in focus after the German and French figures were released Friday. The economy seemed to have avoided a contraction, with core inflation remaining persistent. With the ECB now being as data-dependent as the Fed, these releases assume greater importance ahead of their September 14th meeting.
The Bank of England (BOE) and Reserve Bank of Australia meetings will be scrutinized as well for possible interest rate hikes. Besides that, 169 S&P 500 and 87 Stoxx 600 companies will be releasing their earnings this week (including the aforementioned Apple and Amazon).
Deutsche Bank economists are anticipating a gain of 175k jobs for July US payrolls on Friday, a slowdown compared to the previous three-month averages for headline and private payrolls gains. Also of interest will be average hourly earnings and hours worked data.
On rates, Deutsche Bank also expects the BOE to hike rates by 25bps, taking the Bank Rate to 5.25%, although the decision between a 25bps and 50bps increase is expected to be tight.
A more hawkish hike of 50bps could be what ends up knocking US stocks lower. After all, the market is due for a selloff. Even a small, healthy one seems inevitable; stocks can’t rise indefinitely, after all.
And when that happens, traders may be looking at another great opportunity to make bullish bets at comparatively lower prices.
