Stocks Boosted by Strong Apple, Amazon Earnings, Nasdaq 100 Ends July 12.5% Higher

Key Points

• Major US indices rallied on Friday amid earnings optimism following strong reports from Apple and Amazon.
• The S&P 500 and Nasdaq 100 indices both posted their best monthly gains since 2020.
• Stronger than expected/inflationary US data failed to dent the mood, despite slightly boosting Fed tightening bets.

Strong Apple, Amazon Earnings Lift Sentiment

Despite US data on Friday showing elevated inflationary pressures in June and elevated wage growth in Q2, resulting in a modest rebuilding of Fed tightening bets, major US indices saw solid gains amid earnings optimism. The S&P 500 rallied 1.4% to 4,130, with bulls eyeing a test of early June highs in the upper-4,100s. The Nasdaq surged 1.8% to hit its highest level since May and came close to retesting 13,000.

The S&P 500 posted a monthly gain of 9.1%, its best monthly performance since November 2020. The Nasdaq 100 index, meanwhile, rose over 12% in July, its best monthly performance since April 2020.

Apple share price jumped over 3.0% above its 200-Day Moving Average and to its highest since early May after the company gave an upbeat outlook. The company, which is the largest by market capitalization in the world, said supply chain snags are easing and that demand for its iPhones remains strong.

Meanwhile, fellow US tech heavyweight Amazon saw its share price rally over 10% and to its highest level since April after the e-commerce giant forecasted strong Q3 revenues amid higher Prime subscription fees. Q2 Earnings have been a big tailwind for US equity markets in the last two weeks. According to Reuters, of the 279 S&P 500 companies to have reported thus far, 77.8% have beaten analyst expectations.

Another major tailwind for stocks this week was the less hawkish tone from Fed Chair Jerome Powell at Wednesday’s Fed policy announcement, as well as data on Thursday that showed the US was already in technical recession in H1 2022, which investors interpreted as likely to deter the Fed from overly aggressive rate hikes in the quarters ahead.

Markets (Slightly) Rebuild Fed Bets

Friday saw a deluge of US data drop. The widely followed US Employment Cost Index rose 1.3% QoQ in Q2, showing that the labor market remained hot even though the economy contracted. Meanwhile, the PCE price index (the Fed’s preferred inflation gauge) rose at a YoY pace of 6.8% in June, its highest since 1982, amid a 1.0% MoM gain, which was the highest since 2005.

Meanwhile, Personal Income and Spending both saw slightly better than expected MoM growth in June, underpinning some optimism that the US economy might be able to avoid a contraction in Q3. The money market-implied probability of another 75 bps rate hike from the Fed rose slightly in wake of the strong data dump to just under 40% from closer to 30% before.

But equity markets seemed much more focused on earnings optimism. In terms of the S&P 500 GICS sector performance breakdown, Health Care (-0.4%) and Consumer Staples (-0.7%) were the only two out of the eleven sectors in the red. Energy was the best performer, gaining 4.5% amid higher oil prices and after Chevron and Exxon Mobil reported record quarterly revenues. Consumer Discretionary was the next best performer, up 4.2%.