Weekly Market Outlook
By Keith Schneider and Donn Goodman
It was a good week and an exceptionally good month in the markets.
The S&P 500 was up 9.1%. This was the best July since 1939. Conversely, it came on the heels of the 3rd worst June ever, down 8.4%.
We have continually illuminated for you that the market is made up of three important inputs. A change, positive or negative in any of these inputs, can result in the market rallying or taking a nosedive. These inputs are inflation, interest rates, and earnings. Let’s see what might have fueled this recent relief rally:
- Inflation: Negative and remains elevated.
Inflation is not coming down anytime soon. On Friday, the Personal Consumption Expenditure Index (PCE) came out with a much higher than expected annualized increase of 6.8. This is the highest PCE since 1982.
- Interest Rates: Positive and trending down.
This has clearly been the surprise recently especially given the Federal Reserve raising their key lending rate this past week by 75 basis points. After hitting 3.09% in early July, the 10-year US Treasury rate came down to 2.67% this week. TLT (20-year bond funds MarketGauge frequently uses) have rallied from 112 to 117 at the end of the month.
The rise in long-term rates reflects increased concern over future economic weakness, which was verified by the contraction of quarterly GDP numbers announced this past week. Many economists are forecasting a recession on the horizon (if not already… which is currently being debated).
High Yield bonds (junk), an often-used proxy for risk on assets, had the best month (up 5.1%) since October 2011. See charts below:
3. Earnings: Good and trending higher.
175 companies released their earnings this past week. Some good (Apple & Amazon beat estimates) and some not so good (META, MSFT, and GOOG all missed). As we have mentioned in most of our recent commentary, earnings are expected to grow by 4% or greater during 2022. According to FactSet, 56% of S&P 500 companies have reported their Q2 2022 results with 73% beating their earnings and 66% beating their revenues estimates.
Here are a few of Mish’s recent TV appearances which echo the more positive sentiment. (Remember that we told you she had suggested purchasing ARKK a few weeks back – a bold forecast that the market could and would go into a Risk On rally mode).
Mish Talks Macro with David Keller
Big Tech Earnings and the Impact
Looking Under the Surface
Here are a few more important economic indicators that convey to us that we should expect more volatility and a retest of the lower range on the markets in the next few months:
Consumer Confidence. Trending downward.
Leading Economic Index (LEI). Trending downward.
Residential Home Sales. Fairly steep decline in June.
Quarterly Retail Profits. Down dramatically.
Chicago Purchasing Managers. July continued downward decline.
August seasonality (especially Midterm Election years): Caution advised
Click here for the full Market Outlook to see additional information about the aforementioned economic signs including detailed charts. In addition, you’ll learn 9 ways that MarketGauge can help you to protect and further achieve your portfolio goals.