U.S. equities ended the month on a positive note despite concerns of recession. For the week the S&P gained 4.3%, the Dow Jones added was up ~3% while Nasdaq composite climbed 4.7%. All 3 indices ended with their best month since 2020, mitigating their losses from a dismal first half. For July, the S&P 500 gained 9.1%, while the Dow Jones rose 6.7%, the strongest monthly showing for each index since Nov'20. The Nasdaq climbed 12% for its best month since Apr'20. Yield on the benchmark 10-year U.S. Treasury note edged down to 2.642% Friday from 2.680% on Thursday.
About 73% of S&P 500 companies that have reported quarterly results have beaten profit forecasts. However, Conflicting economic signals are forcing investors to chart their paths forward without a clear view into how business conditions will develop in the months ahead. Data on Friday showed robust growth in consumption and wages, potentially keeping pressure on the Federal Reserve to raise interest rates to bring inflation under control. Worker pay and benefits rose 1.3% in the second quarter while consumer spending rose 1.1% in June, accelerating from May.
On Domestic front: Indian equities closed higher for the week and month led by softening commodity prices, positive earnings session amid unstable macroeconomic environment. The market awaits on RBI's policy meeting next week for further cues. For the week, the Nifty rose 2.6%, while Mid Cap and Small Cap rose 1.7% and 0.5% respectively. All sectoral indices ended higher for the week except Nifty Auto (-0.7%), while Nifty PSU Bank and Nifty FMCG were largely flat. Nifty Metal gained the most at 7.7% followed by Nifty Commodities and Nifty Fin Service which were up 3.9% and 3.7% respectively. The earnings season has largely been positive so far. However, it witnessed high costs and reduction in profit margins primarily due to higher RM prices. 40% of Nifty 500 companies declared their results so far with revenue growth of 35% YoY, while EBITDA grew by 21% YoY due to lower margin.
The market recovered in July'22 with 9% gain, led by softening commodity prices and strong earnings session. The RBI is expected to raise interest rates again by 35-50bps next week. Healthy earnings session is expected next week as well which is likely to mitigate the negative effects of the rate hike in the coming week. Commodity prices have started softening and overall retail inflation are being mitigated. However, food inflation is still a major concern due to the sporadic and unequal monsoons. The Russia-Ukraine war and concerns of COVID continue, to play a key role in affecting global markets. The FED, in its meeting earlier this week, raised interest rates by 75bps to tackle inflation, while U.S. GDP declined for second consecutive quarter, highly indicative of a recession. Concerns of depreciating rupee, widening trade deficit, FII selling and volatility in global crude prices remain intact. However, we expect strong economic rebound, normalized commodity prices, inflation within a targeted range and better visibility in 2HFY23.