Global stocks rebound strongly in July after grim first half of 2022

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Global stocks were on track to post their best month since late 2020, bouncing back from a savage first half of 2022 as easing rate rise expectations and upbeat earnings from big tech groups fuelled a broad rally.

The FTSE All-World index of developed and emerging market shares has jumped 5.8 per cent in July, as sentiment was boosted this week by resilient quarterly updates from America’s tech titans that signalled the dominant US equity sector could withstand economic headwinds.

The strong performance in July stands in contrast to the first six months of this year, when the global stock index slumped by more than 20 per cent, dragged lower by the worst first-half performance for the $44tn US equity markets in more than 50 years.

Shares in Amazon leapt 12 per cent higher in pre-market trading in New York on Friday after the ecommerce giant beat analysts’ quarterly revenue forecasts and offered an upbeat outlook for the rest of the year because of strength in its cloud computing business.

Microsoft, Apple and Google parent Alphabet have all also issued more confident outlooks than investors had feared, lifting the US tech sector that has an outsized weighting in global markets.

Column chart of FTSE All-World index, monthly % change showing Global stocks heading for best month since November 2020

In a sign of how investor sentiment is brightening, US equity funds tracked by EPFR recorded their largest inflow in six weeks this week, picking up $9.5bn of net new investments, according to Bank of America. The blue-chip S&P 500 has jumped more than 7 per cent this month, with 86 per cent of the stocks listed on the index rising since the end of June, according to FactSet data. Across the Atlantic, Europe’s Stoxx 600 has gained around 7 per cent.

A bout of weak data on the US economy has helped ease concerns that the Federal Reserve, the world’s most influential central bank, will continue to aggressively tighten monetary policy after it sharply lifted interest rates in the first seven months of this year. Those views were bolstered on Thursday, when data showed the US economy had contracted for a second consecutive quarter, sparking hopes that the worst inflationary cycle for four decades would moderate.

“Economic data has not been that strong [and] that was taken as less aggressive monetary policy going forward,” said Antoine Lesne, head of strategy and research at State Street’s SPDR ETF business.

“The Fed is going to continue to hike, but not as forcefully as the market had previously expected,” he added.

Futures pricing on Friday implied the Fed’s main funds rate would peak at 3.25 per cent next February from a range of 2.25 to 2.5 per cent at present. In mid-June, such predictions ran as high as 3.9 per cent.

Strategists at Barclays, however, warned that July’s strong performance for stocks and bonds “could be brought back down to earth” by inflation remaining elevated as a result of Russia’s invasion of Ukraine.

“The fundamental outlook remains clouded by the dramatic slowing in the economy and high energy prices,” they said in a note to clients. “It feels optimistic to believe the Fed can soon reverse course.”

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