The S&P 500 rose Friday to stay on track for its best month in almost two years, clawing back some of its losses from a dismal first half.
The broad U.S. stock index is on pace to gain 8.4% in July, its strongest monthly showing since November 2020. The Dow Jones Industrial Average is on track to rise 6.1% for the month, and the tech-heavy Nasdaq Composite to climb 11%.
Investors have taken comfort in recent days from the idea that slowing economic growth might encourage the Fed to raise rates at a slower clip. They also have been encouraged by positive signals during earnings season, as expectations for quarterly profit growth rose over the past month.
But money managers and strategists are also debating whether stocks can hold onto the recent gains in the face of continued monetary tightening and worrisome signals about the economy. Many are skeptical.
“It seems like the market has prematurely declared victory over inflation,” said
Sameer Samana,
senior global market strategist at Wells Fargo Investment Institute. “It’s completely out of step with what the Fed and Chair Powell laid out this week.”
On Friday the S&P 500 rose 0.8%, while the Dow industrials added 0.4%, or about 135 points. The tech-heavy Nasdaq Composite advanced 0.9%. All three gauges are on course for weekly as well as monthly gains. Still, the S&P 500 is down 14% so far this year.
Data Friday showed robust growth in consumption and wages, potentially keeping pressure on the Federal Reserve to raise interest rates to bring inflation under control. Worker pay and benefits rose 1.3% in the second quarter—a near record pace—and consumer spending rose 1.1% in June, accelerating from May.
The energy group led the S&P 500’s sectors Friday with a gain of 3.5%, while the communication services segment brought up the rear with a 1.2% decline.
Among individual stocks,
Procter & Gamble
shares fell 5.8% after the maker of Gillette razors and Ariel laundry products said buyers were starting to cut back spending after months of rapid inflation.
Amazon.com
shares jumped 11% after the tech company said quarterly revenue grew faster than analysts had expected.
Apple
shares added 2.2% after it reported that iPhone sales continued to grow in the recent quarter.
Shares of Intel dropped 10% on a surprise quarterly loss.
Roku
shares tumbled 26% after the maker of streaming hardware said key revenue drivers would come under pressure in the second half of the year.
High energy prices propelled Chevron to record earnings of $11.6 billion in the second quarter, pushing shares up 8.1%. Fellow oil giant
Exxon Mobil
posted profits of $17.9 billion, lifting the stock 3.9%.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note edged down to 2.647% from 2.680% on Thursday. Yields move in the opposite direction of bond prices, and have fallen in recent weeks on expectations the Federal Reserve will soon slow the pace at which it is raising interest rates.
Investors are closely focused on any hint from the central bank about the future path of monetary policy.
After raising its benchmark interest rate by 0.75 percentage point for a second straight meeting Wednesday, the Fed indicated that at some stage it will likely ease off to gauge the effects of higher rates on the economy. About 72% of S&P 500 companies that have reported quarterly results have beaten profit forecasts, soothing money managers who feared earnings would begin to slide.
But many investors remain cautious about the outlook for the economy and stocks. With inflation at a 40-year high, some say central banks in the U.S. and elsewhere will remain in a hurry to raise rates. Adding to nerves, data this week showed the U.S. economy shrank for a second quarter in a row.
“The key takeaway is that they’re not falling off a cliff,” said Brian O’Reilly, head of market strategy at Mediolanum International Funds, of earnings. “Consumer demand is still relatively strong.”
Nonetheless, Mr. O’Reilly thinks the bounce in stocks will fade. “We’re still facing a pretty dicey economic backdrop,” he said, adding that there are few signs that inflation is peaking.
Traders working on the floor of the New York Stock Exchange this week.
Photo:
Spencer Platt/Getty Images
Overseas markets were mixed. The Stoxx Europe 600 rose 1.3%.
Chinese stocks dropped after a quarterly government economic meeting failed to provide a stimulus package. The Politburo, China’s top policy-making body, on Thursday all but acknowledged that the country would miss its annual growth target this year. It signaled the government would stick to its zero-tolerance Covid measures and take only cautious steps to support the ailing property market.
Hong Kong’s benchmark Hang Seng Index fell 2.3%. China’s benchmark Shanghai Composite closed down 0.9%.
The selloff of China tech stocks followed a Wall Street Journal report that billionaire
Jack Ma
is planning to relinquish control of Ant, an affiliate of
Alibaba.
The move could delay Ant’s initial public offering for a year or longer.
Elsewhere in Asia, the Nikkei 225 index in Tokyo was flat, while South Korea’s Kospi Composite edged up 0.7%.
Write to Joe Wallace at joe.wallace@wsj.com, Rebecca Feng at rebecca.feng@wsj.com and Karen Langley at karen.langley@wsj.com
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