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Pre-Market in Red to Start August, Can the Market Maintain Its July Momentum?

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Stock futures dip in pre-market trade to start August after witnessing an impressive northbound journey in July. Except for the second half of March, Wall Street melted significantly in the first half of 2022.

The July rally was sustained till the last day of trading even though the Fed raised interest rate by 75 basis points in two consecutive months and the U.S. GDP contracted in the first two quarters of this year.

Last month was the best for Wall Street after November 2020. The investors community is divided about whether the market has bottomed out or it witnessed a bear market relief rally. The market’s movement in August will be important indicator.

The July rally gathered pace from three corners. First, Fed Chair Jerome Powell and Treasury Secretary Janet Yellen said that the economy is not in recession as macro-economic variables do not indicate so.

Second, Powell indicated that the central bank might reduce the magnitude of rate hikes going forward depending on economic data. Third, the second-quarter 2022 earnings reports have been are better than expected so far.

With respect to the second-quarter reporting cycle, this week will be another big one, with as many as 964 companies slated to release their quarterly numbers. Several major companies will report today after the closing bell.

Some of them are electronic gaming & multimedia developer Activision Blizzard Inc. (ATVI - Free Report) , cloud networking solutions provider Arista Networks Inc. (ANET - Free Report) , agricultural input manufacturer CF Industries Holdings Inc. (CF - Free Report) and The Mosaic Co. (MOS - Free Report) , chipset developer ON Semiconductor Corp. (ON - Free Report) , energy bigwigs Devon Energy Corp. (DVN - Free Report) and The Williams Companies Inc. (WMB - Free Report) .

Moreover, the ISM Manufacturing Index for July and the Construction Spending data for June will be released during today’s trading session. The ISM manufacturing index declined steadily in the second quarter of 2022. However, the overall data for each month stayed in expansion territory this year.

The data for July will be analyzed microscopically to get a sense of the economy’s health. The manufacturing sector constitutes nearly 12% of the U.S. GDP. In addition to the headline number, the sub-indexes for new orders, employment and price will be closely monitored.

The consensus estimate for the ISM Manufacturing Index for July is 52.2, below the previous month’s reading of 53. Any reading above 50 indicates expansion in manufacturing activities.  The consensus estimate for Construction Spending in June indicates a gain of 0.2% in contrast to a drop of 0.1% in May.

Outside the United States, China’s factory activities dropped in July thanks to the recent weakness of its property market. Property sales continued to fall as developers failed to meet the delivery targets on time. China’s National Bureau of Statistics reported that the manufacturing PMI slid to 49 in July from 50.2 in June. Any reading below 50 indicates a contraction in manufacturing activities.