The S&P 500 rose Friday on strong gains from big tech names Apple and Amazon to round out its biggest monthly gain in nearly two years.
The broad market index climbed 0.9%, while the Nasdaq Composite added 1%. The Dow Jones Industrial Average rose 155 points, or 0.5%.
Wall Street would post strong weekly gains. The Dow is now up 2.5% for the week, while the S&P 500 and Nasdaq Composite are each up about 4%.
The key averages were also on track for their best month of the year. The Dow is on track for a gain of more than 6% for July, which would be its highest since March 2021. The S&P 500 is up 8.8% this month and the Nasdaq Composite, which is still in bear market territory , has almost risen. 12%. Both are looking at their biggest monthly gains since November 2020.
That performance is in stark contrast to the previous six months, when stocks plummeted to their bear market levels in June. The market reversed as investor fears about the aggressive pace of the Federal Reserve’s rate hikes began to ease and the idea that inflation may have peaked.
“Starting from a position of depressed sentiment and bearish positioning was an asset, but the bigger picture was a subtle shift in inflation and inflation expectations, and thus the market’s expectation for the path of the Fed,” said Ross Mayfield, investment strategy analyst at Baird. “Recently, the resilience of corporate earnings has only contributed to the bull case and probably put a bottom under equity markets in the near term.”
Still, some continued to worry about inflation levels with Russia’s ongoing war on Ukraine and the possibility that markets could turn lower again. On Friday, the Bureau of Economic Analysis reported that the June personal consumption index is up 6.8% on a 12-month basis. This inflation indicator, closely monitored by the Fed, reached its highest level since January 1982.
“This may eventually turn out to be a bear market rally – they are very common during longer bear markets – but the combination of interest rate deferral, bearish sentiment and positioning, and corporate and consumer resilience in the face of inflation has been enough to lead to a rally in risky assets,” Mayfield said.
On Friday, investors also got the latest reading from the University of Michigan Consumer Sentiment Index, which came in at 51.5 for July. That’s a slight improvement from the preliminary reading and higher than the June 50 all-time low.
Big Tech Revenue Boosts Indices
Nevertheless, the gains of two of the largest stocks in the market led to higher averages. Amazon shares rose 10% after the e-commerce giant reported stronger-than-expected sales for the previous quarter, while Apple climbed about 2% after better-than-expected iPhone earnings.
Chevron and Exxon Mobil also delivered better-than-expected results for the previous quarter, pushing their shares up about 5% and 2%, respectively.
However, the latest set of business results has been mixed.
Shares of Roku fell more than 26% after the company missed estimates and warned of a slowdown in advertising. Chipmaker Intel fell 11% after quarterly results fell short of expectations.
More than half of the S&P 500 companies have reported profits, and 72% of those names exceed expectations, data from FactSet shows.
These moves come after the Federal Reserve rose three-quarters of a percentage point on Wednesday and a negative GDP reading on Thursday.
“The market is beginning to hope that slowing economic growth will result in a more subdued Fed going forward, even if it is a little further out. So it would make sense to me that lower expectations going forward would result in a little bit of momentum on the the stock markets,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments.
Goodwin warned, however, that the unusual economic climate and the long window before the next Fed meeting make it difficult to predict the path of the central bank from here.