Stocks had finished sharply higher on Friday, leaving the Dow up 6.7% for July and the S&P 500 higher by 9.1% last month; those were the biggest monthly gains since November 2020. The Nasdaq surged 12.3% for its best monthly performance since April 2020 and its strongest July on record, according to Dow Jones Market Data.
*Volume on U.S. exchanges was relatively light, with 10.3 billion shares traded, compared to an average of 10.8 billion shares over the previous 20 sessions.*
*What drove the market*
*Stocks flipped between losses and gains on Monday after the Institute for Supply Management reported that its closely followed manufacturing gauge dipped to 52.8% in July from a reading of 53% a month earlier.*
*Economists polled by The Wall Street Journal had expected the index to come in at 52.1%. While any number above 50% signifies growth, the latest reading was the weakest since June 2020.*
“Although the activity outlook remains challenging, we believe that the risk-reward for equities is looking more attractive as we move through 2H,” said JPMorgan Chase & Co. in a note. They cited the S&P 500’s “second sharpest P/E (price-to-earnings ratio) de-rating of the past 30 [years], exceeding the typical compression seen during prior recessions,” and said that “while the current equity multiple is in-line with the historical median, we believe it is better than fairly valued given the shift in industry mix to higher quality companies.”
Stocks had roared in July on speculation the central bank was close to the end of its rate-hiking cycle on signs that runaway inflation may have peaked. Investors are now scrutinizing data, where any above-expectation reading could upend bets on a Fed pivot. At the same time corporate earnings have largely shown that companies are able to deliver profit growth.
July delivered a nice relief rally on a dovish interpretation of Fed comments and tech earnings that were not as dismal as expected, but it’s not surprising that we would see a retrenchment after that sort of performance. We are still facing a rising rate environment and an economy that is probably technically in recession.
*Geopolitical tensions also kept markets on edge, with China again warning that its military would take action if House Speaker Nancy Pelosi makes a landmark visit to Taiwan. The offshore renminbi was down as much as 0.6% on the day in the wake of the report, while non-deliverable forwards on the Taiwanese dollar indicated a weakening of the island’s currency.*
*Despite a 12.6% advance from a low on June 16, the S&P 500 could face an ugly stretch. Wall Street lore says October is the most dangerous month for the stock market, but August and September are actually worse, with the S&P 500 averaging declines of 0.6% and 0.7%, respectively, over the past 25 years.*
On Friday, data showed that higher gasoline prices led the personal-consumption-expenditures price index up 1% in June, exceeding forecasts of a 0.9% advance. June inflation measured by the PCE index showed the cost of living over the past year climbed 6.8%, the highest rate since January 1982.
Last Wednesday, the Fed ended its two-day policy meeting with another 75-basis-point rate hike in an effort to curb soaring inflation. Fed Chair Jerome Powell said another 75 basis-point move could be appropriate in September, but the Fed would take a data-dependent, meeting-by-meeting approach to decisions.
*Powell also warned that the economy would need to see a period of below-trend growth to rein in red-hot inflation and that the path to a so-called soft landing for the economy continued to narrow.*
*Skeptics contend bulls, in looking for a so-called pivot from the Fed, were misreading the message from central bankers.*
*Federal Reserve Bank of Minneapolis President Neel Kashkari said on Sunday that the central bank is still committed to its goal of 2% inflation. However, “we are a long way away” from that goal, he said in an interview on CBS News’ “Face the Nation.”*
By: via @AlliesFin Serve Stock Market
