Investors found sources for optimism to start the second half of 2022, pushing U.S. stocks higher by 9.3% in July. First, quarterly earnings are off to a relatively strong start. S&P 500 earnings are tracking toward 6% year over year growth, according to FactSet. This would be the lowest growth since 2020, but still better than many feared. Mega cap technology companies, which continue to represent an outsized portion of the market, fared well in general this earnings season.
Increased Interest Rates
Late in July, the Fed enacted its second consecutive 0.75% interest rate increase. It spurred a bullish response for both stocks and bonds as many were expecting a full point hike. The month was highlighted by an emerging view that the Fed would “pivot” to a more dovish position and potentially slow rate moves for the balance of the year. As a result, longer term interest rates modestly declined for the month. While not uncommon, it can feel strange when markets seem to be rooting for a slow economy to appease the central bank. Gas prices have declined significantly in recent weeks, but the narrative of high inflation seems to be an increasing focal point among consumers. In our view it is too soon to tell if the Fed will accelerate or decelerate tightening.
The dollar continued to appreciate against almost all other currencies, tempering gains in international stocks when measured in dollars. China was a significant drag on Emerging Markets results as Covid restrictions, property values and regulatory issues all weigh on outlook. While numerous high-profile risks remain, China also presents significant potential upside.