Stocks rise to kick off a big week of earnings, Fed meeting ahead

U.S. equities rose on Monday morning, coming off a positive week for the major averages, as traders brace for the busiest week of corporate earnings, as well as insights into further interest rate hikes from the Federal Reserve.

The Dow Jones Industrial Average rose 101 points or 0.3%. The S&P 500 gained 0.2% and the Nasdaq Composite added 0.1%. All three major stock indexes are having their best month of the year.

Monday kicks off the final week of trading for the month of July, and perhaps the most important week of the summer, with the Fed meeting, GDP data, and earnings from almost a third of the S&P 500, including five mega-cap tech companies, on deck. Investors are still worried about the potential economic recession and hope this week’s news storm will help direct their expectations.

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“Investors likely believe Thursday’s GDP report will show the second quarter of decline, which is the unofficial signal of recession,” Sam Stovall, chief investment strategist at CFRA Research, told CNBC Monday. “While the Fed will probably announce a 75-basis-point rate hike on Wednesday, they will offer a more moderate tone towards further rate increases. We see this counter-trend rally continuing in the near term.”

On Friday, the major averages fell on the back of weaker-than-expected earnings from Snap that sent tech shares tumbling. Still, all three benchmarks closed the week higher, with the Dow up 2%. The S&P 500 advanced about 2.6%, and the Nasdaq capped the week up 3.3%.

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It was the second positive week in the last three for the major averages. The S&P 500 has been attempting a comeback after falling into a bear market earlier this year. The index is currently up more than 8% from its 2022 and trading near the highest levels since early June.

Investors shifted into risk assets last week after absorbing some strong corporate results that had Wall Street deliberating whether the bear market has found a bottom.

“Equities have managed to stage a rally MTD and climb a wall of worry. The bounce has been led by cyclical and Growth stocks, helped by longer end yields stabilizing, which in turn eases the pressure on P/E’s,” Barclays’ Emmanuel Cau wrote in a Friday note.

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“This confirms to us that the market’s focus has switched from inflation worries to growth worries, with a sense that bad news is becoming good news again,” Cau added.

As of Friday, about 21% of companies in the S&P 500 reported earnings. Of those, nearly 70% beat analysts’ expectations, according to FactSet.

Investors will face a stacked week of earnings ahead that will include reports from major tech giants Alphabet, Amazon, Apple, and Microsoft.

The Federal Reserve on Wednesday will also conclude its two-day policy meeting. Economists are widely expecting a three-quarter point hike.

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