Quick Recap
- The S&P 500 closed at 4,130.29 last week with nearly $8 trillion in Big Tech companies reporting earnings, which were largely positive vs. consensus expectations. The VIX fell once again, this time to $21.42.
- The S&P has climbed more than 11% from its low point in mid-June, suggesting markets may have already bottomed for the summer. Meanwhile, Bitcoin has hit a six-week high, and the Nasdaq had its best month since April 2020 by climbing nearly 13% in July.
- The U.S. Federal Reserve Bank (Fed) hiked interest rates by 0.75 percentage points for the second consecutive time to fight 41-year-high inflation rates, though the market has rallied on expectations of shallower Fed monetary tightening through year end.
Details
U.S. equity markets moved higher for the second consecutive week — and it was a big one. The Fed raised interest rates by 75bps which was in-line with consensus expectations. Big Tech reported earnings, and Apple has reached its highest level in nearly four months after posting FQ3 results that were better-than-expected and saying sales should “accelerate” in the current quarter despite U.S. economic uncertainty. “There is no obvious evidence in our data that there is a macroeconomic effect on iPhone sales… and we are continuing to hire,” CEO Tim Cook said on its earnings call. “The situation on supply is improving,” added CFO Luca Maestri.
Buoyed by high oil and gas prices, the U.S. energy sector is expected to have swelled earnings by more than 250% in the second quarter. Exxon Mobil and Chevron, the U.S.’s two largest oil companies, reported record profits on Friday, with Exxon’s profit more than tripling from a year ago. In sum: The S&P 500 gained 3.9% on the day of the Fed hike (Wednesday) and the day after (Thursday), the best rally after an interest rate increase going back to 1970, (Source: Bloomberg).
U.S. Real GDP shrank at a -0.9% annual rate in Q2, driven by a decline in consumer spending and private inventories, as well as weaker housing and business investment. However, markets may be shrugging off the recession fears that dominated headlines earlier this summer. I believe investors are now betting on a slightly more dovish Fed, with a more moderate pace of interest rate hikes.
Of late, there has been such a bearish level of investor sentiment in the markets that the uncertainty around Fed actions could actually drive stocks higher, which we have witnessed over the last month. Information Technology and Consumer Discretionary have been two of the best-performing sectors within the S&P 500 Index.. We are overweight both sectors in Newday portfolios.
Scotsman’s Outlook
- Stocks look to have put in a good low in mid-June. While some backing and filling look possible as August gets underway, I believe that stocks can probably push higher in the months ahead at a time when it is least expected.
- Treasury Yields have broken support, and we think a bit more weakness is possible before bottoming out at 2.35%-2.50% and turning back higher to potentially test/exceed highs.
- The U.S. Dollar index is still not showing many signs of peaking but a move back to new highs may take place in August as investors anticipate further Fed interest rate increases.
- As global growth continues to slow, we anticipate commodity prices may continue weakening into August. However, I believe precious metals (gold and silver in particular) might be getting closer to bottoming.
- Cryptocurrencies should have made lows for the year, and while consolidation is possible into mid-August, rallies are likely into September/October.
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