A U.S. stocks rally is cruising into a month that has proven strong in recent years, though equities must navigate employment data and an earnings season that could be precarious, with the Federal Reserve bent on raising U.S. interest rates.
“We have had a pretty resilient market in the first half of this year,” said Mona Mahajan, senior investment strategist at Edward Jones. “The market needs one big question answered, and that is what does the economy look like in the back half of the year.” At the same time, July brings its share of potentially market-moving events. First up is next Friday’s U.S. employment report, which will give investors a snapshot of how the economy is faring after 500 basis points of rate hikes from the Fed since last year, its most aggressive tightening in decades.
Second-quarter corporate results will kick off the following week. S&P 500 companies are expected to post an overall drop in earnings of 5.7% from the year-earlier period, according to Refinitiv IBES. The consumer price index report arrives on July 12, a crucial read on inflation before the Fed’s July 26 policy decision. The U.S. central bank held rates steady in June and has signaled two more increases are coming this year, including one widely expected in July.
The S&P 500 is trading at 19.1 times forward earnings estimates, well above its historic average P/E of 15.6 times, according to Refinitiv Datastream.