Market Perspective for July 24, 2022

It was good week in the stock market with all major market indexes showing gains, even though Friday was a down day. Friday’s second-quarter earnings report from Snap caused the Nasdaq to drop 1.9 percent.

Snap reported that revenue per user fell 4.5 percent year-over-year, and they were not going to provide guidance for the third quarter due to the current financial climate. Snap blamed this on competition from TikTok, Apple’s iOS 2021 update, and slowing demand for its online platform.

Shares of Snap fell 39 percent on Friday and are now down almost 65 percent for the year. Tech stocks have been heavily sold this year, with Meta (Facebook) down 45 percent and Amazon down more than 25 percent year-to-date. Shares of Netflix are down 63 percent for the year. Netflix reported Tuesday they lost nearly 1 million subscribers during the second quarter, which was less than the forecasted 2 million.

Verizon reported second-quarter earnings on Friday and lowered guidance for the year. They now expect their wireless service to increase from 8.5 percent to 9 percent for the year, instead of the previously expected growth rate of 9 percent to 10 percent. They expect growth from service and other revenue will range from flat to down by 1 percent.

Shares of Verizon (VZ) lost 7 percent on Friday to close at $44.45, a new 52-week low and a year-to-date loss of 14.45 percent.

Despite Friday’s losses, the Dow Jones Industrial Average was up 2.0 percent, the S&P 500 gained 2.6 percent, and the Nasdaq was up 3.3 percent last week. Year-to-date, the Dow is down 12.2 percent, the S&P 500 is down 16.9 percent, and the Nasdaq is still down by 24.4 percent.

According to Factset, the second quarter earnings are starting to look weaker than anticipated. On a year-over-year basis, the S&P 500 has reported the lowest earnings growth since the fourth quarter of 2020. The number of S&P 500 companies that have reported positive earnings surprises is below their five-year average.

Six of the 11 stock market sectors have reported year-over-year earnings growth, with the energy and industrial sectors leading the way. Out of the five sectors reporting a decline in earnings, financials are down the most.

The recent rally in stocks has been encouraging, though these rallies are not uncommon in a bear market. Each stock market rally this year has been accompanied by a pullback in the 10-year yield.

Also helping has been the sharp drop in commodity prices, which should continue to help with inflation. Oil prices are now down 20 percent from the recent peak, copper is down 32 percent, and lumber is down 60 percent.

Last week, Russia and Ukraine signed a deal supported by the United Nations that will allow grain exports from Ukraine to resume through the Black Sea. But on Saturday, Russian missiles damaging the Black Sea port of Odesa. It appears that this puts the grain deal in question.

Existing home sales for June fell 5.4 percent from May, the same amount they fell in May 2020. Even though sales fell, the price of homes hit another record high. The national median price for a previously owned sits at $416,000, an increase of 13.4 percent year-over-year.

Sales declined to 5.12 million homes in May, which is 14.2 percent lower than in June 2021. Outside of the pandemic, this is the slowest sales pace since January 2019.

There were 1.26 million homes on the market at the end of June, an increase of 2.4 percent over last June and the first year-over-year gain since 2019. At this sale pace, inventory is now at a three-month supply, which is still considered low.

According to Freddie Mac, the average rate for a 30-year fixed rate mortgage is at 5.54 percent, up 0.03 percent since last week.

Next week will be possibly the most important week of the summer for the stock market and bond market with earnings, economic news, and the Federal Reserve meeting. The second quarter gross domestic product will be released on Thursday. On Friday morning, the personal consumption expenditures inflation data comes out along with the employment cost index. On Tuesday and Wednesday, the Fed is meeting. The market expects a 75-basis point rate hike.

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