Weekly Market Review & Analysis For July 18, 2022

The market news headlines that suggested a slowing growth rate were prevalent this week but not as resilient or persistent as the stock market. It refused to let concerns about growth slow down. It traded across the growing concerns to have a good week and looking much better than it did before Snap stock began to crack in the wake of the second quarter (Q2) report on earnings.

A dramatic plunge in Snap Inc. shares has weighed on the tech-heavy loaded Nasdaq, and the Snapchat parent company plunged by 39.1 percent to reach a two-year closing record low. The plunge by Snap occurred after the company announced unsatisfactory results in its Q2 and opted not to issue guidance because of "incredibly challenging" market conditions. Snap is also announcing its plans to "substantially slow down" its hiring rate.

For the week's session, the Nasdaq punched a healthy 3.3 percent, the S&P 500 index increased by 2.5 percent, and the Dow Jones rose by 2 percent. Overall it was a positive trading week for stocks, even though the market pullback on Friday; however, it was not a good week for the outlook on the economy. Especially:

*The July Housing Market Index (NAHB) fell from 67 to 55. It was its most significant monthly drop in history, excluding the decline in April 2020.

*Housing starts market in June was less than anticipated, and building permits for construction (a key measure indicator) for single-unit residences declined across all regions.

*Home sales were much frail than anticipated in June and fell for the fifth month in a row.

*Initial jobless claims reached a quarter million for the very first time since middle November 2021.

*The month of July Philadelphia Fed Index dropped from -3.3 to -12.3. The index was accompanied by a rapid drop in the index of new orders.

*The June LEI (Leading Economic Index) fell by 0.8 percent: the fourth consecutive drop, which prompted the Conference Board to suggest the possibility of a U.S. recession is likely by the year or in the early part of 2023.

*The IHS Markit preliminary July Manufacturing PMI fell from 52.7 to 52.3, and the IHS Markit Services PMI sank from 52.7 to 47.0 (a figure below 50.0 suggests a squeeze in business movement).

The weakening economy was evident greater in the U.S. Treasury market action than within the equity market. The yield of the U.S. Treasury Two-year note dropped 14 basis points during the past week, settling at 2.99 percent, and the Ten-year note yield fell 15 basis points this week to close at 2.78 percent. The inversion curve, where shorter-dated securities have higher yields than those with longer-dated dates, is a sign of economic growth concerns and is perceived in some circles as a sign of a recession.

The market behaved as though the poor economic news and dismal earnings reports during the week were not an unwelcome surprise. It was not in all regards, but the reaction in the first six months of the calendar year due to the belief that wall street would have to deal with the economic downturn and more challenging earnings conditions was seen during this week's session.

Apart from that, the stock market found a vital rally trigger on Tuesday with the BofA Global Fund Manager Survey that revealed the lowest allocation of equity ever since the Lehman Bros. crisis and the highest level of cash since 2001. The news was the focal factor for a more skewed approach to the market that boosted it throughout the week.

It was a distraction from the weak economic numbers and was the first rate increase from the European Central Bank (ECB) in the past 11 years, which seemed more extreme than investors anticipated. Notably, it was the case that the European Central Bank increased its lending rate by 50 basis points even though most market participants believed it would raise rates by just 25 basis points. It is worth noting that the Bank of Japan, for its part, kept the critical rate of lending unaffected at -0.10 percent, in line with expectations.

There are clear signs of slower growth, along with the declining long-term interest rates; the growth equities companies led this week's rally and drove the market's gains.

The Russell 3000 Growth Index moved up 3.2 percent versus an increase of 2.4 percent in the Russell 3000 Value Index. In addition, the Philadelphia Semiconductor Index spiked by 5.5 percent, helped by reports that a bill that will provide $52 billion for the semiconductor business will be passed in the Senate this week.

Market final comment

The market has been wild and volatile this year. As we have discussed in previous articles, it is affected many growth companies we talk about at TradeSelecter. The pullback has penalized even reliable and well-performing companies.

Current inflation has not helped the situation anyway. If we are not fetching returns beyond 9%, we are relinquishing our purchasing power. That means many of us are stuck in a difficult situation. How can we find good returns while handling our risk?

There is a particular way that confines our drawdown and allows us to keep expanding our portfolios onwards of inflation – even if market volatility persists - that suggests another bull run might be right around the corner.

To me, this sell-off is like an in-game reset, as we have seen in the market activity between 1994 and 1995: which very much parallels what we're witnessing today.

Therefore, I suggest we should do only one thing in the middle of a cyclical bear market like this - Buy great names and hold them. That's it.

When you do that, one must pay no heed to the gloomy news and concentrate on acquiring great stocks that are trading at reasonable deal prices.

Market summary

INDEX:         STARTED WEEK        ENDED WEEK       CHANGE       %CHANGE       YTD%

DJIA:                   31288.26                   31899.29               611.03                2.0              -12.2

Nasdaq:               11452.42                   11834.11               381.69                3.3              -24.4

S&P 500:              3863.16                     3861.63                 98.47                 2.5             -16.9

Russell 2000:       1744.37                     1806.88                 62.51                 3.6              -19.5

This article was printed from TradingSig.com

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