Second quarter corporate earnings, highly anticipated US inflation data and federal ReserveThe monetary policy meeting is one of the potentially significant events after the S&P 500 lost 20.6% in the first six months of 2022.
For now, the mood on Wall Street is grim. The bond, which investors count on to offset the stock’s decline, is on pace with equities as well as the ICE BofA Treasury Index for its worst year in the index’s history. Some 90% of respondents to a recent Deutsche Bank poll expected a US recession by the end of 2023.
The key factor behind the turmoil in the markets is the Fed, which, after nearly two years of emergency measures, is increasingly tightening monetary policy to fight the highest inflation in decades, which fueled stock gains and growth.
“We could actually use a little less bad news in July,” said Eric Kubi, chief investment officer at North Star Investment Management. “Hopefully, this can turn the back half of 2022 into a more favorable light.”
CFRA’s chief investment strategist Sam Stovall wrote that history, however, “doesn’t give very encouraging news” to those who expect the first half to bounce back in the latter half of the year.
Stovall said in a recent report that in one of the worst start to the year for the S&P 500 since World War Two, the index only posted gains in the second six months of the year half the time, rising an average of 2.3%. Is.
On the data front, the report on employment and inflation will give investors a snapshot of the economy after the Fed hiked the rate by 150 basis points already.
A disappointing jobs report next Friday could raise concerns of a possible recession. Next week brings data on US consumer prices, selling off stocks after a warmer-than-expected report last month prompted the Fed to deliver a massive 75 basis point increase in June.
Recently there has been evidence of declining growth. Friday’s data showed US manufacturing activity fell to a two-year low in June after a report earlier in the week showed June consumer confidence is at its lowest in 16 months.
“The important question is what rollover will happen first: will it be inflation or growth?” said Angelo Kourkafas, an investment strategist at Edwards Jones.
Q2 earnings start to come into effect from the week of July 11, indicating whether companies can live up to the estimates despite rising inflation and growth concerns.
According to Refinitiv IBES, analysts expect quarterly earnings to rise 5.6% from a year ago, slightly below estimates of 6.8% growth in early April.
Anthony Saglimbene, global market strategist at Ameriprise, said, “If companies can “just match or maybe hedge on lower expectations, I think that will be a positive tailwind for stock prices.”
Goldman Sachs strategists are short
Warned that consensus margin forecasts suggest earnings estimates are “likely too optimistic” and that margins for the average S&P 500 company are likely to decline next year “whether or not the economy slides into recession.”
“While investors are focused on the potential for a recession, the equity market does not fully reflect the downside risk of earnings,” Goldman said in a note this week.
The July data should add to the Fed’s actions at the Fed’s next meeting on July 26-27, when rates are expected to rise by roughly another 75 basis points.
Some investors predict that slowing growth will prompt the Fed to soften its stance sooner than policymakers project. But analysts at Capital Economics disagreed, writing on Friday that such a rapid reversal would be inconsistent with central bank behavior in recent decades.
As a result, “we do not expect US equities and Treasuries to perform well in the second half,” he said.