[New York Stock Market] Rises on Soft Landing Expectations... Nasdaq Up 3.8% in July

The three major indices of the U.S. New York Stock Exchange all closed higher on Monday, July 31, the last trading day of the month. Amid ongoing expectations of a soft landing that can reduce inflation without a recession, key employment data and earnings reports from companies like Apple and Amazon are scheduled for this week.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,559.53, up 100.24 points (0.28%) from the previous session. The large-cap focused S&P 500 index rose 6.73 points (0.15%) to 4,588.96, and the tech-heavy Nasdaq index gained 29.37 points (0.21%) to close at 14,346.02. The Dow, which had recorded a 13-day consecutive rally, rose 3% over July. The S&P 500 and Nasdaq increased by 2.9% and 3.8%, respectively, marking their fifth consecutive month of gains. This is the longest monthly rally since 2021.

Chris Zaccarelli of Independent Advisor Alliance said, "Corporate earnings are not as bad as feared, which is clearly good for the market," adding, "The rally this month is driven not only by positive economic news but also by the fact that corporate earnings seem less affected than expected."

In the S&P 500, eight of the eleven sectors rose, excluding healthcare, consumer staples, and communication services. Energy stocks surged more than 2%, buoyed by rising international oil prices. Apple, which is set to report earnings this week, closed slightly higher. SoFi soared nearly 20% after reporting smaller-than-expected quarterly losses and raising its annual guidance. Palantir jumped over 11% as the AI rally boosted its revenue estimates. Leading energy stocks such as Chevron (+3.02%), ExxonMobil (+2.96%), and Occidental Petroleum (+1.69%) all rose. Sweetgreen climbed nearly 7% after Piper Sandler upgraded its investment rating. Conversely, Ford Motor Company closed slightly lower after Jefferies downgraded its rating.

[Image source=Reuters Yonhap News]

Investors closed July trading while closely watching upcoming earnings reports and economic data releases amid growing expectations of a soft landing. With consumption and the labor market?accounting for two-thirds of the U.S. economy?showing solid performance, and recent inflation indicators clearly slowing, investor optimism about the economy has strengthened. The core Personal Consumption Expenditures (PCE) price index for June, a key inflation gauge monitored by the Federal Reserve (Fed), rose 4.1% year-over-year, marking the lowest level since September 2021. This week, major employment reports such as the jobs report and the Job Openings and Labor Turnover Survey (JOLTS), which could influence the Fed's future monetary policy decisions, will be released consecutively.

Ostan Goolsbee, president of the Chicago Federal Reserve Bank and a prominent dove within the Fed, stated that all options regarding interest rate hikes will be considered at the September Federal Open Market Committee (FOMC) meeting. In an interview with Yahoo Finance, he said, "Nothing has been decided," adding, "Between now and the September FOMC meeting, we will gather several important observations on inflation and the labor market." He also assessed that the Fed is on a "golden path" to lowering inflation without causing a recession. He emphasized, "If this can be achieved, it will be a historic victory."

Currently, market expectations of a soft landing persist alongside views that the Fed's rate hikes are nearing their end. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market on this afternoon reflects over an 82% probability that the Fed will hold rates steady at the next September FOMC meeting. Although the Fed's June dot plot indicated the possibility of one more rate hike this year, the market currently favors a scenario of no hikes through year-end. The chance of an additional hike this year stands at around 25%.

However, the Fed announced through its Senior Loan Officer Opinion Survey that lending standards at U.S. banks have tightened and may become even more restrictive going forward. The Fed stated, "Regarding the outlook for the second half of 2023, banks expect to tighten standards across all loan categories," citing increased economic uncertainty, declining collateral values, and worsening credit quality as the main reasons. Consumer lending standards, including credit card and other consumer loans, have also tightened. In the commercial and industrial loan sector, lending standards have tightened across all business sizes, with demand also decreasing.

This week, earnings reports from companies including Apple, the largest by market capitalization, will be released. Amazon, Starbucks, Qualcomm, and CVS Health are also scheduled to report. Given that corporate earnings released so far for the second quarter have exceeded expectations, attention is focused on the upcoming figures. These companies' earnings are expected to be key drivers of the New York Stock Exchange's performance. Last week, strong earnings from Google Alphabet and Meta Platforms helped propel the market higher. Zaccarelli predicted, "If they provide good guidance, the current bull market could accelerate and gain momentum heading into the fall." According to FactSet, about 80% of S&P 500 companies that have reported earnings so far have beaten expectations.

In the New York bond market, the yield on the 10-year U.S. Treasury note is around 3.96%, while the 2-year Treasury yield, which is sensitive to monetary policy, is near 4.88%. The dollar index, which measures the value of the U.S. dollar against six major currencies, rose nearly 0.3% to 101.9.

International oil prices rose for the third consecutive trading day. At the New York Mercantile Exchange, West Texas Intermediate (WTI) crude oil for September delivery closed at $81.80 per barrel, up $1.22 (1.51%) from the previous session. The monthly gain for July reached 15.8%, the highest monthly increase since January 2022.