As you no doubt recall, June was a terrible month for stocks, as every sector outside of energy experienced steep losses. The declines were especially ominous at the time because they capped off the worst six-month stretch in over 50 years.
The good news is that equities staged a strong comeback last month, with the S&P 500 advancing more than 9%. This was the best July since 1939 for the s&P 500 and the best performing month since November 2020. The gains were due to a variety of factors.
For one, corporate earnings were far better than most anticipated. Thus far, over 75% of the companies in the S&P 500 that have reported have beat analyst expectations.
Good Life Nova in the media
American companies still lack retirement plans: AARP – InvestmentNews
Secondly, inflation is showing signs of topping out or, at the very least, moderating. The average cost for a gallon of gas has fallen dramatically nationwide, tumbling by about 20% since peaking in mid-June, and commodities like wheat and copper have also dropped.
Third, though GDP data from the first and second quarters suggests the economy is nearing a recession – or in the midst of one – other numbers paint a different picture. Last month, the economy added approximately 525,000 jobs in June and the unemployment rate dropped to its lowest level since 1969. Meantime, consumer spending remains resilient, rising 1.1% last month, more double what economists had expected.
Even so, no one can say for sure that stocks have turned the corner for good.
Yes, inflation could be peaking, but it's still high by any standard, far outstripping the pace of wage gains. Typically, when consumers have less money to spend, it doesn't portend good things for corporate earnings.
Also, while the jobs picture looks strong now, that data is backward looking. If the Fed aggressively raises rates in the coming months, demand is bound to cool, which could create cracks in the labor market. In other words, stay tuned.
What I’m reading
There Are No Winners in Musk’s Twitter Mess – Bloomberg Businessweek (subscription required)
We do think that the worst of the losses are likely behind us. However higher market volatility is likely to persist throughout 2022. This is to be expected in light of the seemingly contradictor forces hovering over the investment landscape. We’re in a time of hot inflation with simultaneous signs of cooling prices; a strong labor market in spite of rising interest rates; and a Fed trying to avoid a recession while working hard to slow demand; geopolitical concerns, and the list goes on.
Regardless of what may come in the short term, we hold fast that investors are best served over the long term through disciplined financial planning. This is the work we do. If we can be of service to you, or answer any questions, please don’t hesitate to call or office at 703-214-2112. Until next time, we’re here to help!