Growth and technology-related stocks jumped in July, with investors now trying to figure out what that means for the latest bear market rally.
“From my conversations with investors, I don’t think there’s anything clear on unprofitable technology,” Eric Sheridan, senior equity research analyst covering the U.S. Internet sector at Goldman Sachs Group, said in an online press release. Investors are still looking at large, “ripe” growth stocks in this area, he said, but their level of interest “really dies when it comes to new companies that don’t have free cash flow.”
The tech-heavy Nasdaq Composite surged 12.3 percent last month, its best July performance ever and its biggest monthly gain since April 2020, according to Dow Jones market data. Meanwhile, the Russell 1000 Growth Index RLG;
It gained 11.9% last month, beating the Russell 1000 Value Index’s RLV;
It’s up 6.5%, according to FactSet data.
“People are flocking to technology,” Danielle DiMartino Booth, CEO of Quill Intelligence, told MarketWatch by phone late last week. “The herds you’re seeing are on the move.”
U.S. stocks rose last week after the Fed announced it would raise interest rates by three-quarters of a percent to curb rising inflation. The rally appears to be linked to data-driven speculation that the central bank is moving to raise rates at a faster pace as the economy slows, DiMartino Booth said.
“The market may be looking for rose-colored glasses,” Ed Perks, chief executive officer of Franklin Templeton Investment Solutions, said in a phone interview late last week.
“I think we still have a pretty good slate ahead of us,” he said. “The Fed will not eliminate inflation as their priority as Public Enemy No. 1 at this point.”
US stocks remain in a bear market, the Nasdaq is the most difficult of the three major indicators this year. Growth stocks were broadly hurt in 2022, even worse than value equities after their recent rally.
watch out Why the rally in growth stocks may indicate that ‘peak’ Fed hawkishness is over.
For example, the iShares Russell 1000 Growth ETF IWF;
For the iShares Russell 1000 Value ETF, IWD has slipped nearly 20% this year through Monday, compared with a decline of slightly more than 8%.
According to FactSet data.
But big tech companies Apple Inc. AAPL,
and e-commerce giant Amazon.com AMZN;
It appeared strong last week after reporting quarterly earnings. Amazon shares rose 10.4 percent on Friday as investors digested results for the second quarter, which included a sales beat despite reporting a second straight quarterly loss.
Read: Apple follows strong earnings and brisk iPhone sales with $5.5 billion in debt
Meanwhile, traditionally defensive sectors of the S&P 500 have been among the index’s best performers this year through Monday, including a 3.4% gain for utilities SP500.55;
and a 2.7% discount on consumer staples SP500.30,
The S&P 500 is down more than 13 percent so far in 2022.
In a sign of weakness creeping into the U.S. economy, a barometer of U.S. factories fell to 52.8 percent in July, according to data released Monday by the Institute for Supply Management. While a number above 50% indicates growth, this was the weakest reading for the manufacturing PMI index since June 2020.
watch out US factories will grow at slowest pace in two years, ISM says New orders will again fall under bad signs
A report by the Institute for Supply Management also shows that inflation is slowing. Still, the cost of living, as measured by the consumer-price index, rose to a 9.1% annual pace in June, the fastest since November 1981.
Rate hikes appear to be “very premature” in 2023, when the Fed could begin cutting rates, Perks said.
“They are trying to re-establish price stability in the market without causing undue damage to the economy,” he said. “I don’t think we’ve got any evidence to call anything vague on this.”
Stocks started August modestly lower Monday. The Dow Jones Industrial Average DJIA;
Slipping 0.1%, the S&P 500 SPX;
It fell 0.3% and the Nasdaq COMP,
It was down 0.2%.
