Following a challenging few months, things looked up for stocks in July.
US shares, in particular, did very well, with the S&P 500 and Nasdaq 100 Indexes both generating strong gains. The US market was boosted by good performances by Big Tech companies such as Apple and Amazon — which generated double-digit gains during the month — as well as strong performances by the likes of chip designer NVIDIA and electric vehicle manufacturer Tesla.
During July, many companies posted their earnings for the latest quarter. In general, earnings were solid, with many companies beating expectations or producing results that weren’t as bad as feared.
One highlight of the earnings period was Q2 results from semiconductor giant Taiwan Semiconductor Manufacturing Co.
Not only did the company beat earnings estimates, but it also produced better-than-expected guidance for Q3. This allayed fears that demand for semiconductors — which is often seen as a leading indicator of economic growth — has fallen. Looking ahead, the semiconductor industry could get a further boost from the US government’s CHIPS and Science Act, which passed Congress late in the month. This provides $52 billion in funding for US chip manufacturers.
On the economic front, inflation in the US hit 9.1% in June, driven by higher prices for gasoline, food, and rent.
This represented the highest rate since 1981 and was higher than economists had been expecting. US rental prices rose 0.8% in June — the fastest pace since 1986 — taking the total increase over 12 months to 5.8%. Eurozone inflation hit a record 8.9% in July, up from 8.6% in June.
As a result of the high level of inflation, central banks continued to increase interest rates. During the month, the European Central Bank raised its rates by 0.50% — its first rate increase in 11 years. Meanwhile, the Bank of Canada increased its rates by 1% — its largest hike since 1998. The US Federal Reserve hiked rates by another 0.75%, taking the cost of borrowing in the US to between 2.25% and 2.5%. While the Fed indicated that more hikes are coming, it also said that it will be data dependent going forward. The US GDP fell 0.9% in the second quarter of 2022 after a decline of 1.6% in the first quarter, unofficially signaling the start of a recession. The differential in interest rates between the US and Europe, along with the different outlooks for the two regions, resulted in the US Dollar and the Euro reaching parity for the first time in two decades.
In Asia, China’s once-booming property market experienced a deep slump in July, with people losing faith in the market.
China’s COVID-19 lockdowns and its zero-Covid policy continue to impact the global economy, as its own economy is growing at a slower rate and this is affecting markets that are dependent on the country’s high level of demand.
In the commodities space, a number of assets trended lower in July.
Oil, for example, fell back to below $100 per barrel. This decline — which can be partly attributed to recession fears — helped to boost equities as lower commodity prices are likely to result in lower inflation, which should lead to less interest rate increases. The US 10-year Treasury yield ended the month at 2.65% after starting the period near 3.0%. Gold prices also weakened during the month. Not all commodities fell, however. With Russia cutting off gas supplies to Europe, natural gas prices spiked to their highest levels since 2008.
July was generally a good month for cryptoassets with Bitcoin, Ethereum and many other tokens producing strong gains.
With investors embracing risky assets, sentiment towards the asset class improved significantly.
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