Brace yourself, the stock market is actually going up
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.