What’s Next for Stocks?
The S&P 500 index gained 9.1% in July. The rally was fueled by better than expected earnings from some of America’s biggest companies. The majority of S&P reported Q2 earnings so far, well over half of companies have beaten their consensus estimate.

This was just the 17th time since WII that the U.S. stock market had a monthly gain of 9% or greater. What does history tell us may come next?

  • 1 year later, up 15% on average
  • 6 years later, up 82% on average

The Housing Slowdown Accelerates
Real estate has been on a tear since the start of the pandemic. Home prices are up about 44% over the past two years.

This rate of growth isn’t sustainable, and it would probably be healthy to see a 5%-10% decline in prices. If higher mortgage rates stick around, it wouldn’t surprise me if the slowdown continues.

During July, 7.7% of homes for sale had a price drop. Part of the reason is the collapse in affordability and its impact on demand. Mortgage applications have moved down to their lowest level since 2000.

Did Inflation Peak?
There was zero inflation last month after rising 1.3% the prior month. The latest inflation report is good news and could add support for the Fed to raise at a slower pace in September.

However, consumer prices are still up over 8.5% from over a year ago. Well above policy makers’ target for annual inflation, which is around 2% on average. Here’s a breakdown of the YoY change:

The Greatest Jobs Comeback in History
All 22 million jobs that were lost during Covid have been made up.

The US economy added 528K jobs in July, doubling expectations. And the unemployment rate ticked down to 3.5%, back to pre-pandemic levels that were the lowest since 1969.

Repeat of 1970?
U.S. stocks have experienced the worst first half of the year since 1970. During 1970, the market finished the year positive after being down -24.7%.

Not saying this will happen again but it is interesting how similar 2022 has looked.

And that’s all for this week. Check out my Twitter (@ChicagoAdvisor) for more frequent updates. Have a great weekend everyone!

George Maroudas
Twitter @ChicagoAdvisor

Sources and Disclaimers:

S&P 500 Returns after a monthly gain of 9% or more data from Morningstar Direct, Bloomberg.
More Price Drops Than Any Time since 2015 from Redfin
Mortgage application lowest since 2000 from Bloomberg
July CPI report from BLS.gov
Job Recovery chart from Ryan Detrick
S&P 500 Return 2022 vs 1970 data from YCharts
Home price up 44% data from Redfin

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