Stocks Leapt Higher in July, But Will the Rally Continue this Month?

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Stocks just finished their best month in over a year. Can they keep running in August?

The S&P 500 climbed 4.3 percent in the week between Friday, July 22, and Friday, July 29. That helped lift the index 9.1 percent in July, giving the index its biggest monthly gain since November 2020. The Nasdaq-100 performed even better. Its 13 percent rally was the best monthly performance since April 2020.

The Federal Reserve helped fuel the move by hinting at slower interest-rate increases after a pair of historical 75-basis point hikes. There were also strong results from companies including Apple (AAPL) and Amazon.com (AMZN). This week brings fewer catalysts, with less activity as August progresses. The indexes also face potential resistance after their big moves. (See below for more.)

The economy shrank by 0.9 percent in the second quarter, its second straight contraction. While that caused recession worries, it spurred confidence because weaker growth can slow inflation. That, in turn, may reduce the risk of an overly hawkish Fed. The result could be a counterintuitive market that views “bad” economic data as “good” for stocks.

Apple, Amazon.com Rally

Last week featured results from the market’s largest companies, including growth stocks like AAPL and AMZN. Both surpassed expectations. AAPL forecast steady growth and better-than-feared impacts from supply-chain issues. AMZN’s revenue beat as e-commerce and AWS grew. Analysts see the potential for margin expansion as the company digests recent investments and advertising expands.

Biggest Gainers in the S&P 500 Last Week
Enphase Energy (ENPH)+34%
SolarEdge Technologies (SEDG)+25%
Constellation Energy (CEG)+22%
United Rentals (URI)+18%
Chipotle Mexican Grill (CMG)+16%
Source: TradeStation Data

Microsoft (MSFT) and Alphabet (GOOGL) inched higher despite missing consensus. Meta Platforms (META), performed worst of the major names after revenue shrank for the first time ever. Weak advertising trends and ongoing problems with Apple’s privacy rules caused the miss.

Ford Motor (F) surged 15 percent, its biggest weekly gain since the beginning of the year, after beating consensus estimates on the top and bottom lines. The automaker benefited from sales of high-margin SUVs and fewer supply-chain problems.

Two of the big decliners were Stanley Black & Decker (SWK) and Comcast (CMCSA). SWK’s revenue disappointed for at least the third straight quarter. CMCSA struggled to add new broadband subscribers, mirroring problems at Verizon Communications (VZ) and AT&T (T).

Green Energy Surge

Green energy stocks jumped last week thanks to strong earnings and positive news on Capitol Hill. First, companies like Enphase Energy (ENPH) and First Solar (FSLR) beat estimates thanks to growing demand for roof-top systems. Second, West Virginia Senator Joe Manchin changed course to support a bill favoring the industry. It also helped utilities like Constellation Energy (CEG).

Traditional energy stocks jumped 10 percent after Exxon Mobil (XOM) beat estimates and oil prices rebounded.

S&P 500, daily chart, showing 100-day moving average and potential levels.

Charting the Market

The S&P 500 closed on Friday at 4130, where it may face resistance. First the index is back to its 100-day moving average, which marked a top in early April. It’s also near the highs of early June, which matched the lows of late February and early March.

Next, some traders may expect a retest of 4,000. Aside from its importance as a big round number, it was also close to the previous weekly high. Will they look for old resistance to become new support?

The Week Ahead

This week remains active for earnings, with more than one-quarter of the S&P 500’s members reporting. It also features important monthly employment data.

The Institute for Supply Management’s manufacturing index is the main economic report today. Similar reports for July, already released by S&P Global, showed weakening. On Semiconductor (ON), Pinterest (PINS) and Devon Energy (DVN) issue results.

Tomorrow has little data but Advanced Micro Devices (AMD) and Uber Technologies (UBER) report earnings.

Biggest Decliners in the S&P 500 Last Week
Stanley Black & Decker (SWK)-16%
Cincinnati Financial (CINF)-12%
Comcast (CMCSA)-12%
Newmont Mining (NEM)-12%
Baxter (BAX)-11%
Source: TradeStation Data

Wednesday brings ISM’s service-sector index and crude-oil inventories. Moderna (MRNA), CVS Health (CVS) and Under Armour (UAA) announce quarterly numbers.

Initial jobless claims follow Thursday, along with results from Alibaba (BABA), Block (SQ) and Amgen (AMGN).

Non-farm payrolls, the government’s key monthly employment report, are on Friday morning.

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