The major averages all gained for another winning week, capping the best month for stocks in 2022. It was also a week that perfectly exemplified why it’s often the expectations that matter far more than the actual numbers reported.

On the macro front, in addition to a 75 basis point rate hike from the Federal Reserve on Wednesday, we got Q2 GDP index that pointed to the second consecutive quarter of economic contraction. Historically, two consecutive of GDP contractions would indicate an economic recession. It's interesting why the stock market continued to shoot up even after this bad news. Remember, the stock market is forward-looking, and usually economic events that occur today have been forecasted, discussed and largely priced-in about 6 months ago. In March, we wrote about the recession fear that the stock market was discussing (here). Since then, stocks have declined with the magnitude usually observed in a recession. The reading on Wednesday was simply a confirmation and the market's rally was a statement that it's ready to think about what's next. 

On the earnings front, we heard from the mega-cap names responsible for over 20% of the S&P 500′s market valuation. And despite mixed results and guidance from all of them, these stocks (with the exception of Meta Platforms) managed to react positively.

In our view, the market's ability to shrug-off these weak macroeconomic conditions and mixed earnings results is a sign that investors these bad news have been priced in to the market, and ready to look forward to 2023. We think the market has all the ingredients needed to put in a near-term bottom. While that doesn’t mean we shoot higher in a straight line, it does give cause to be more optimistic as we move forward and some breathing room to allow the economic picture to further develop.

Looking back

Within the portfolio, we received earnings results from Microsoft (MSFT), Alphabet (GOOGL), Meta Platforms (META), Ford (F), Apple (AAPL), Chevron (CVX) and AbbVie (ABBV). We will continue to provide our summary/ take-aways of these earning reports on our website.

On the macroeconomic front: On Tuesday, new home sales were reported to have fallen 8% in June and 17% annually. Then on Wednesday, pending home sales were reported to have fallen 8.6% in June and 20% annually, missing estimates. Also Wednesday, the Federal Reserve raised interest rates by 75 basis points.

On Thursday, we got the advance read on second quarter GDP, which pointed to a 0.9% contraction, missing expectations for a 0.3% expansion. Also Thursday, initial jobless claims for the week ended July 23 came in at 256,000, missing expectations of 250,000. Finally, on Friday, we got the June Personal Spending report, which indicated a 4.8% annual increase in the core PCE price index (the Fed’s preferred measure of inflation), slightly hotter than the expected 4.7%.

Looking ahead

Within the portfolio, we will hear from Advanced Micro Devices (AMD) and Coterra Energy on Tuesday after the bell; from Eli Lilly (LLY) on Thursday before the opening bell.

Here are some other earnings reports and economic numbers to watch in the week ahead:

Monday, August 1

• 10:00 a.m. EST: ISM Manufacturing PMI

Tuesday, August 2

• Before the bell: Caterpillar (CAT), Uber (UBER), Marriott (MAR)

• After the bell: Occidental Petro (OXY), Starbucks (SBUX), PayPal (PYPL)

Wednesday, August 3

• Before the bell: CVS (CVS), Moderna (MRNA), Regeneron (REGN)

• After the bell: Booking Holdings (BKNG)

Thursday, August 4

• Before the bell: Alibaba (BABA), Shake Shack (SHAK)

• After the bell: Amgen (AMGN), Carvana (CVNA), Live Nation (LYV), XPO Logi (XPO)

• 8:30 a.m. EST: Initial Jobless Claims

Friday, August 5

• 8:30 a.m. EST: Nonfarm Payrolls