Investment Review - August 2022
- The major averages rebounded sharply in the month of July. The Dow Jones Industrial Average rose 6.7%, the S&P 500 rose 9.1%, and the Nasdaq Composite rose 12.3%. The July rally narrowed the year-to-date losses in each of the indices: Dow Jones Industrial Average (-9.6%), S&P 500 (-13.3%), and Nasdaq (-20.8%).
- July’s impressive stock performance was driven by better-than-expected second quarter earnings results and lower interest rates. With almost 90% of S&P 500 companies reporting, sales growth has been +15.1% and earnings growth +7.7%; exceeding consensus estimates by +3.5% and 3.6% respectively, according to Evercore ISI. Sales growth exceeding earnings growth reflects the impact of inflation on both price and input costs.
- Parts of the yield curve inverted in July with interest rates falling across the maturity spectrum. The 10-year treasury note yield fell 36 basis points to 2.65% from 3.01% at the beginning of the month. The 2-year treasury note fell 6 basis points to 2.89% from 2.95% at the beginning of the month. The dynamic drop in yields created a 24-basis-points inversion between the 2-year and 10-year note. The 3-month t-bill and 10-year note spread is a better indicator of economic conditions and remains positive, for now. An inverted yield curve is suggestive of a recession to come.
Sources: Bloomberg, FACTSET, U.S. BEA, U.S. BLS, Federal Reserve, Instit. For Supply Mgmt, ISI, IBD, Yardeni Research
Disclosure: This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.
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