July turned out to be the best month for Wall Street stock investors since November 2020, a rally fueled by better-than-expected financial results from some of the biggest US companies and bets that the Federal Reserve may curb its policy of constraining the economy sooner than previously expected. .
The S&P 500 rose 1 percent early Friday afternoon, taking its monthly gain to more than 8.5 percent. This will be its best month since the first announcements of an effective vaccine for Covid-19 helped stocks rise nearly 11 percent in November 2020.
It’s a sharp change in tone after a particularly difficult streak. Investor sentiment was boosted by signs that some of the largest US companies were able to weather economic headwinds, including slowing growth and higher interest rates. This week, prominent tech names like Apple, Microsoft, Amazon and Alphabet — whose size and performance have pushed the stock market to new heights in recent years — announced investor relief results. The four stocks were higher for the week and month.
Meanwhile, investors appeared to take solace from the Federal Reserve’s latest meeting, interpreting the central bank as willing to slow the pace of interest rate increases as the economy begins to cool. Higher interest rates raise costs for businesses and affect profits, causing investors to tune in to the easing signals in the Federal Reserve’s current policy.
“Despite the weaknesses, the earnings were good,” said Alex Atanasio, portfolio manager at Glenmede Investment Management. He added that although the Fed raised interest rates on Wednesday, long-term Treasury yields, which help determine borrowing costs around the world, have fallen along with expectations of an interest rate hike, “and this boosts stocks.”
What does a Fed rate increase mean to you
burden on borrowers. The Federal Reserve is raising the federal funds rate, the key interest rate, and it’s trying to Curb Inflation. By raising the rate, which is what banks charge each other for overnight loans, the Fed starts to have a ripple effect. Either directly or indirectly, a number of borrowing costs rise on consumers.
Of the 278 S&P 500 companies that have reported earnings so far, 209 have beat analyst expectations, according to Howard Silverblatt, chief index analyst at S&P Dow Jones Indices.
Amazon’s stock price rose about 11 percent on Friday after its earnings report on Thursday, adding nearly $140 billion to the company’s market valuation. Amazon is among the best performing stocks over the past month, with an increase of more than 27 percent. Given its market capitalization of nearly $1.4 trillion and the way the S&P 500 index is weighted, this move has a significant impact on the index’s performance.
Only Apple, the world’s largest company with a market capitalization of about $2.6 trillion, had a greater impact on the S&P 500 this month. Apple shares jumped 18 percent in July.
There were bright spots in other places, too. European shares rose about 8 percent during the month, despite concerns about Italy’s economic and political health and growing fears of natural gas shortages as winter approaches. In corporate bond markets, corporate debt classified as “junk” has returned more than 5 percent, according to an index managed by Bloomberg, which had the best performance in a single month since October 2011.
However, despite the strong performance, some investors remain cautious, warning that the recent rally could fade just as quickly.
“I think we’re going to have a rough time in the second half of the year, as economic data continues to show an erosion of growth and inflation may not come down as quickly as people hope,” said David Donabedian, chief investment officer. From CIBC’s private wealth business in the United States.
The move higher is a reflection that the current round of updates from US companies is not as bad as feared, which is different from being good. Investors pushed the S&P 500 down more than 8 percent in June, ahead of the current crop of earnings results, and the index is still more than 14 percent below its January peak.
Some investors also said there is a willingness to continue buying stocks while inflation is too high because other, safer assets are not offering the returns that would allow them to defend against the eroding effect of higher prices.
“I’m not as optimistic as the market seems to be,” said Lauren Goodwin, an economist at New York Life Investments. But running into the hills when inflation is too high is just a drag on revenues. We have to remain investors.”
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