US stocks recover in July after dismal first half of 2022

US stocks have recovered from a tough first half of 2022 as easing interest rate hike expectations and this month’s upbeat earnings from major tech companies fueled a broad rally.

The S&P 500 blue-chip index is of course up 9% in July, its best month since November 2020, underpinned by better-than-expected tech earnings this week, signaling the public sector America’s dominant technology can withstand economic depression. FactSet data shows that 86% of the stocks listed on the index have gained in price since the end of June.

The tech-heavy Nasdaq Composite is even better and is on track to rally 12% this month, its best gain since April 2020, as the Federal Reserve stepped in to stabilize the post-crisis markets. due to the global spread of Covid-19.

The strong July performance contrasts with the first half of the year, when the S&P fell 21% and Nasdaq fell 29%. worst first half performance for the US equity market of $44 million over 50 years.

“The tech earnings season has been a bit better than the market feared,” said Baylee Wakefield, multi-asset fund manager at Aviva Investors.

“Investors are also betting that the majority of the negative [economic] the news has been priced in, that the Federal Reserve may become less aggressive in tightening monetary policy and there is enthusiasm in the stock market for slower inflation and less interest rate hikes. than “.

Shares of Amazon jumped 12% in mid-afternoon trading Friday in New York – sending them up 29% in July – after the e-commerce group beat analysts’ quarterly revenue forecasts and offers an upbeat outlook for the rest of the year given its strong cloud computing business.

Microsoft, Apple and Google’s parent Alphabet all offered more confident outlooks than investors expected, elevating the US tech sector, which has a dominant share of the global market.

According to Bank of America, in a sign of how investor sentiment is brightening, US hedge funds tracked by EPFR posted their biggest inflows in six weeks, bringing in 9, according to Bank of America. $5 billion in new net investments, according to Bank of America.

Profits are not limited to the United States. The FTSE All-World Index of developed and emerging markets is on track to gain 7 this month. Europe’s Stoxx 600 is up about 8%.

FTSE All-World Index bar chart, % change monthly shows Global Stocks heading for best month since November 2020

The Fed, the world’s most influential central bank, raised interest rates sharply in the first seven months of this year. On Thursday, however, data showed that the US economy had contracted for the second consecutive quarterraising hopes that the worst inflation cycle in four decades will be corrected and the Fed may slow down its tightening.

“Investors are more worried about inflation and what’s affecting interest rates than they are worried about anything else,” said Rebecca Chesworth, senior equity strategist at State Street’s SPDR ETF business. .

“So they didn’t see any signs that inflation would drop and turn bullish.”

Futures pricing on Friday implies that the Fed’s main fund rate will peak at 3.29% next February, from 2.25 to 2.5% currently. By mid-June, such predictions had risen as high as 3.9%.

However, strategists at Barclays warned that July’s strong performance in stocks and bonds “could be hit again” as inflation continues to rise due to Russia’s invasion of Ukraine.

“The fundamental outlook remains clouded by a significant economic slowdown and high energy prices,” they said in a note to clients. “It is optimistic to believe that the Fed may soon reverse course.”

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