July proved 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 largest U.S. companies and guessing that the Federal Reserve might change its policy of curtailing the economy ahead of schedule. earlier expected could curtail .
The S&P 500 rose 1.4 percent on Friday, bringing its July gains to 9.1 percent, the best month since the first announcements of an effective Covid-19 vaccine, pushing shares up nearly 11 percent in November 2020.
It’s a sharp change of tone after a particularly difficult piece. Investor sentiment was boosted by signs that some of America’s largest companies are weathering economic headwinds, including slowing growth and rising interest rates. This week, big tech names like Apple, Microsoft, Amazon and Alphabet—whose size and performance have propelled the stock market to new highs in recent years—reported results that are a relief to investors. Shares of all four were higher for the week and month.
At the same time, investors seemed to take comfort in the latest Federal Reserve meeting, interpreting that the central bank was willing to slow the pace of rate hikes as the economy begins to cool. Rising interest rates are raising costs for businesses and weighing on profits, prompting investors to watch for signs of an easing of current Fed policy.
“Despite weaknesses, gains were fine,” said Alex Atanasiu, portfolio manager at Glenmede Investment Management. He added that despite the Fed’s rate hike on Wednesday, longer Treasury yields, which help drive borrowing costs worldwide, have fallen, along with expectations for further rate hikes, “and that’s bolstering equities.”
What the Fed’s rate hikes mean for you?
A toll on borrowers. The Federal Reserve has raised the Federal Funds rate, its main interest rate, as it tries to… keep inflation in check. By raising interest rates, which is what banks charge each other for overnight loans, the Fed creates a ripple effect. Directly or indirectly, a number of borrowing costs for consumers will increase.
Of the 278 companies in the S&P 500 that have reported profits so far, 209 have exceeded analyst expectations, according to Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices.
Amazon’s stock price rose more than 10 percent on Friday after Thursday’s earnings report, raising the company’s market value by about $140 billion. Amazon is one of the best-performing stocks of the past month, rising more than 27 percent. Because of its market value of approximately $1.4 trillion and the way the S&P 500 index is weighted, that move had a major impact on the index’s performance.
Only Apple, the world’s largest company with a market cap of about $2.6 trillion, had a greater effect on the S&P 500 this month. Apple stock rose nearly 19 percent in July.
There were also bright spots elsewhere. European equities rose nearly 8 percent this month, despite concerns about Italy’s economic and political health and mounting fears of a natural gas shortage heading into winter. In corporate bond markets, the debt of riskier “junk” companies yielded returns of more than 5 percent, according to a Bloomberg index, which had its best one-month performance since October 2011.
But despite the strong performance, some investors remain wary and warn that the recent rally could unwind just as quickly.
“I think we’re going to have a tough time in the second half of the year, with economic data continuing to show that growth is crumbling and inflation may not fall as quickly as people hope,” said David Donabedian, Chief Investment Officer. of CIBC’s US private equity business.
The move higher is a reflection that the current round of corporate US updates aren’t as bad as feared, other than those results are good. Investors pushed the S&P 500 down more than 8 percent in June ahead of current earnings results, and the index remains about 14 percent below its January peak.
Some investors also said there is a willingness to keep buying stocks when inflation is so high because other, safer assets don’t offer the returns they need to defend against the eroding effect of rising prices.
“I’m not as optimistic as the market seems to be,” said Lauren Goodwin, an economist at New York Life Investments. “But running for the hills when inflation is so high is just a drag on returns. We have to keep investing.”