After a crazy week of trading, investors were looking at important earnings reports on Monday, which caused stock markets to go up sharply.
The Dow Jones Industrial Average went up 1.7%, or 510 points. The S&P 500 went up by 2.5%, and the tech-focused Nasdaq Composite went up by 3.2%.
Last week, the S&P 500 lost 1.6%, which was its fourth loss in five weeks. A reading of inflation that was higher than expected caused wild price swings on the markets as investors changed what they thought would happen when the Federal Reserve raised rates.
The market hit new lows for the year because of the big swings, but some people think there are technical reasons why the market might get better in the short term.
In a note to clients, Mike Wilson of Morgan Stanley said, “The 200-week moving average is a serious floor of support until companies fully confess or a recession officially starts. Both of these things could take a few more months and lead to a short-term technical rally.”
British pound gain boosted the stock rally
On Monday, the British pound gained in response to the UK government’s policy reversals. Jeremy Hunt, the UK’s new finance minister, said that almost all of the planned tax cuts would be scrapped. At $1.127 per U.S. dollar, the price of the pound went up by 1%.
Also, the earnings season for the third quarter is in full swing. Investors are watching to see if corporate America will change its plans for the future in a big way to make up for the slowing economy and high inflation.
On Monday, Bank of America reported results that were better than expected. This made the stock go up by almost 5%. Bank of New York Mellon also had results that were better than what analysts had expected, and its stock went up by more than 5%.
This week, big names in technology like Netflix, Tesla, and IBM are also reporting. Investors also keep an eye on Johnson & Johnson, United Airlines, AT&T, Verizon, and Procter & Gamble.
UBS, Barclays: the trouble for stock markets is not over yet
Even though 2022 had steep losses and a lot of volatility, UBS and Barclays are still not calling the bottom.
“Despite the increased risks to growth and the rise in volatility, equity markets have not become cheaper relative to bonds, nor have they priced in a material slowdown in growth and earnings,” UBS’s chief investment officer Mark Haefele said.
Barclays thinks the market sell-off will last well into 2023 because, even though stock prices are much lower now, they still don’t show how likely a recession is.
Barclays said that the most likely outcome for the S&P 500 is that it will end the year 2022 at 3,200, which is about 12% lower than where it was trading on Monday. If there is a recession, the Wall Street firm thinks the S&P 500 will fall to 2,982 by the end of the year, which is almost 19% less than where it is now.
