Stocks are finally on track for gains in July, though it’s far from clear we’ve seen the last of the bear market gloom.
Driving the news: The S&P 500 is up 4% this month … and if the month ended Tuesday it’d be the index’s best showing since March.
- Ten of the 11 industry sectors of the S&P 500 are flashing green, led by consumer discretionary, information technology and communication technology shares.
- The tech-heavy Nasdaq has climbed a perky 6.2%.
- The Russell 2000 index of smaller stocks is nearly 5.4% higher.
The big picture: The July rally provides a respite for beaten-down portfolios.
- Since peaking on Jan. 3, the S&P 500 broke down badly, as the Federal Reserve pivoted to a rate-hiking stance.
- The S&P had shed as much as 23.6% by mid-June, as a bear market took hold. Since then, things have stabilized, with the index rising more than 6%.
The intrigue: What changed? Oil prices and interest rates, mostly, as global demand showed signs of sagging, both in the U.S. and China, in the face of nosebleed energy costs.
- Early last month, U.S. crude oil was hovering around $120 a barrel. (It’s now about $100.)
- Prices at the gas pump were over $5 a gallon. (They’re now under $4.50.)
- The decline in energy prices has bolstered confidence that inflation, which hit a 41-year high in June, is unlikely to spiral wildly higher.
- That’s helped push 10-year Treasury yields, a crucial input into the formulas virtually all investors use to value stocks, from roughly 3.50% last month to around 3% now.
Will it last? Of course not! Nothing in the markets ever really lasts. But if oil prices stabilize — a big if, given the war in Ukraine — and inflation expectations keep falling and the Fed doesn’t go full-on Volcker with interest rates, then we could have a decent foundation for a push higher in stocks.
What to watch: The Fed’s rate decision next Wednesday — everyone expects a hike of three-quarters of a percentage point — along with chair Jerome Powell’s tonal qualities during his post-meeting press conference.