Topline

The stock market was mixed on Monday despite recently posting its best month since 2020, as investors continue to worry about a potential slowdown in corporate earnings, more rate hikes from the Federal Reserve and whether the economy will fall into a recession.

Key Facts

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Stocks opened lower before turning positive: The Dow Jones Industrial Average rose 0.1%, less than 100 points, while the S&P 500 gained 0.2% and the tech-heavy Nasdaq Composite 0.5%.

All three major indexes posted their best month since 2020 last Friday, with the Dow gaining nearly 7% in July, while the S&P 500 rose over 9% and the Nasdaq more than 12%.

Shares of Big Tech stocks, which surged higher last week after reporting second-quarter earnings, rose again on Monday with the likes of Apple, Amazon and Alphabet all rallying.

Investors are now looking ahead to another big week of earnings: Of the more than half the companies in the S&P 500 that have reported earnings so far, over 70% have beaten analyst expectations, according to FactSet data.

Despite some positive results, a good deal of uncertainty remains in markets, especially after the Federal Reserve hiked interest rates by another 75 basis points last Wednesday in a bid to bring down high inflation.

What’s more, fears of an economic downturn continue to abound after data last Thursday showed that US GDP shrank by 0.9% in the second-quarter, marking a second consecutive quarter of negative economic growth and indicating a technical recession.

Tangent:

Oil prices fell on Monday after weak manufacturing data out of China led to more demand concerns: The price of US benchmark West Texas Intermediate dropped over 5% to around $93 per barrel, while international benchmark Brent crude fell more than 4% to under $100 per barrel.

Crucial Quotes:

“We are seeing a relief rally in the stock market, as pessimism reached extreme levels, and as longer-term interest rates have been coming back down,” says Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “As stock prices rebound and it becomes increasingly clear that we are headed for a more typical recession… markets will again have another selloff,” he warns.

What To Watch For:

“We are still in the very early innings of downturn and [earnings] estimate cuts,” according to a recent note from Bank of America's head of US equity and quantitative strategy, Savita Subramanian. She points to historical data suggesting that the stock market will not find a bottom until earnings estimates move much lower, a trend that has only just started to happen.

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