Published August 5, 2022
The stock market is at a crossroads having recovered the entirety of its June plunge. Prior to that plunge, stocks ran in place for several days as the bulls and bears fought mightily. That standoff was won by the bears, and the plunge ensued. The counter-rally, once it got going, has been almost as swift. It has brought us right back to the point of that long standoff, as the chart below shows.
The bulls can take some fuel from the behavior of the market’s biggest stock. Apple has exhibited no such stalling at the prior resistance. Instead, the stock is showing us a classic v-shaped recovery.
Apple is an outlier though. Corporate bonds reflect a situation much like the broader stock market, a recovery that has paused.
We might argue that the market has finally become mostly comfortable with the Federal Reserve’s path forward, namely that an end is in sight for interest rate hikes. Once we get through this corporate earnings season, investors might have a better feel for the odds of a recession in the coming months. If those odds diminish, the recovery in the markets should continue. Of course, we are also heading into the seasonally worst period for stocks. It’s already been quite a year in markets. There’s plenty more to come.
Stocks marched onward this week, continuing to parse earnings announcements for clues of a coming slowdown and considering the steepness of the Fed’s interest rate path. Little change in markets Monday as the calendar turned to August. The -0.3% dip could easily be expected after a torrid stock recovery in July. A mixed batch of earnings Tuesday amid some concerns that House Speaker Pelosi’s Taiwan visit will further strain relations with China. The Nasdaq took it all in stride, however, with a slim -0.2% slip as the index continues to ride a wave of enthusiasm from the prior week’s better-than-feared tech/consumer earnings. Wednesday saw renewed strength in markets as oil prices fell back near $90 per barrel, furthering the “inflation has peaked!” argument. Strong earnings from Moderna and an equity investment in Paypal encouraged investors en route to a +2.6% gain for the Nasdaq. Stocks largely treaded water Thursday though bond yields fell back after two days of gains. A surprisingly strong employment report sent interest rates back upward Friday. The report pushed stocks well lower at the open. But buyers came in throughout much of the day to pare the decline to a very modest -0.2%.
Another solid week for stocks saw the S&P 500 (SPY) hold its strong July gains with a +0.36% weekly rise. The Nasdaq 100 (QQQ) added +1.99%. Smallcap stocks (IWM) posted a +1.90% gain.
Warm wishes and until next week.