Earnings Tsunami

Despite a down start to the week, stocks finished higher for the second straight week, following through on the previous weeks early and massive “breadth thrust”. The S&P500 closed the week and  the month of July at 4130, where it stood in early My when the market “broke down”. The S&P was up 9% for the month of July. This +9% is its best monthly gain in two years, and the best July since 1939. Since the cash S&P500 bottomed on June 16th when the Fed first raised interest rates by 75 basis points, the S&P500 has gained +12% six weeks, or over 2% per a week as front-end volatility has collapsed 12 points. Breadth has expanded rapidly in recent weeks, and this widespread participation is bullish, aiding weekly, trending following, technical momentum indicators.

The Fed raised its benchmark interest rate 0.75%, for the second straight month (the first being June 16th which looks to be the low year to date), while confirming that further hikes are ahead, despite recent soft economic data. The first reading of the second-quarter GDP print came in at -0.9%, suggesting that the U.S. economy is in a technical recession. All major indices staged a strong rally following the Fed’s rate decision

Economic data reports continue to come in weak, joining consumer confidence that stands near all time lows. Interest rates dropped across all maturities, with the 10-year yield hitting its lowest level since April. This supported most rate-sensitive sectors including staples, utilities, and real estate.

The year-to-date surge in the $US dollar was consistent with a declining stock market. A stronger dollar is a signal of risk aversion and a reflection of a stronger US economy relative to the rest of the world. Investors tend to “hide-out” in the US economy when the ROW is weak. It’s an overall hit to large company S&P500 earnings growth. We finally are seeing a short-term end to the parabolic move in the dollar the last few weeks. This helped commodity and technology sectors rally. A top in the $US dollar would be good news for earnings in 4q22 through 2023.

Earnings are in full swing. See the recap below. The tech sector giant published weaker quarterly numbers, with Microsoft (MSFT), Google parent Alphabet (GOOGL), and Facebook parent Meta (META) all missing expectations on their top and bottom lines. However, all but Intel and Facebook rallied on the news.

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