Ongoing Market Commentary: US stock rally continues

written on July 21, 2022

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

The Dow Jones closed Wednesday's session on a high note while the S&P 500 and Nasdaq outperformed by adding 0.6% and 1.6%, respectively, as investors continued to keep an eye out for second-quarter reports from major companies to gauge the economy's health. Growth stocks were among the top performers, buoyed by an optimistic outlook from Netflix, which jumped almost 8%, following better-than-feared earnings late on Tuesday and after the streaming company said it lost fewer subscribers than anticipated. On the flip side, Baker Hughes tumbled more than 8% after the company reported a quarterly loss amid Russia-related charges and soaring inflation. Biogen lost around 6% despite raising its adjusted earnings and revenue guidance for 2022. On the data front, mortgage applications in the US fell 6.3% in the week ended July 15th, a third consecutive drop and hitting the lowest in over two decades. 

Summary 

  • US stock futures eased on Thursday after a technology-led rally in the previous session, while investors continued to digest more corporate earnings results. Dow and S&P 500 futures each fell about 0.2%, while Nasdaq 100 futures lost 0.3%.  
  • European stocks are on track to follow Asian equities lower as investors parsed through signals from corporate results and geopolitical risks in Europe. The ECB is expected to raise rates for the first time in over a decade, with markets pricing in a 25-basis-point move.
  • In regular trading on Wednesday, the tech-heavy Nasdaq Composite rallied 1.58%, the S&P 500 gained 0.59% and the Dow added 0.15%. All three major averages hit their highest levels in more than a month as extreme negative sentiment paved the way for bulls to step in this month and scoop up beaten down names.   
  • The Hang Seng tumbled 207 points or almost 1% to 20,683 in early deals on Thursday, reversing from Wednesday's strong gains, amid prospects of more interest rate hikes by major central banks to cool soaring inflation. 
  • The dollar snapped a three-day decline against major peers on Wednesday as investors reassessed the Federal Reserve’s tightening path.
  • The war in Ukraine could now expand beyond Donbas, Russia warns while the EU says it’s being blackmailed by Moscow over gas. 
  • Reuters said that the ECB will hike rates for the first time in 11 years later in the day, while the US Fed is widely expected to raise rates by 75bps at its policy meeting next week. 
  • Gold weakened toward $1,690 an ounce on Thursday to its lowest levels in almost a year, weighed down by a rebound in the dollar and looming interest rate hikes by major central banks amid a global fight against inflation.   
  • WTI crude futures fell toward $99 per barrel on Thursday, sliding for the second straight session, weighed down by official data pointing to weaker US gasoline demand despite peak summer driving season. An EIA report released Wednesday showed US gasoline inventories rose 3.5 million barrels last week, thumping expectations for a 71,000 barrel increase.   
  • United Airlines Holdings released earnings per share at 1.43 USD, compared to market expectations of 1.86 USD. 
  • Tesla released earnings per share at 2.27 USD, compared to market expectations of 1.86 USD. 
    Netflix and its peers are set for a ‘return to growth,’ analysts say, giving one stock 120% upside.

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