My 3 biggest stock market predictions for July

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Jone gave the stock market time to breathe after the end of a season of monster results in the first quarter. Investor attention has turned to inflation, jobs and the Federal Reserve.

While July looks like it’s about to start out the same way, it will differ in several key ways. As we move into the second half of the year, we’ll be armed with more information from the Fed. We’ll also have another quarter of corporate earnings and forecasts to help us understand what the rest of the year will look like in the stock market.

The market always wants bad economic news

Investors are watching economic indicators very carefully, and a few important ones will be released in the first two weeks of July. Oddly enough, the stock market will likely react to these data points exactly the opposite of what you would expect.

Major stock indexes retreated slightly last month following a Federal Reserve meeting. The Fed’s comments made it clear that interest rate hikes are likely to come sooner rather than later. Unemployment is falling faster than economists expected, while inflation becomes a bigger risk for the central bank to manage.

Image source: Getty Images.

If new economic data suggests higher than expected growth or inflation, then we should be experiencing a turbulent stock market. Capital city actions will flow so interest rates are more likely to rise. Investors were shaken up a bit over the past month, and new data points validating these concerns will not go unnoticed.

ISM Manufacturing Data comes out July 1, followed by the Bureau of Labor Statistics monthly employment report on July 2. Consumer price index will be released on July 13. On July 16, we’ll see valuable metrics on consumer sentiment and retail sales. Economists expect inflation to be around 4.3%. Several million jobs are expected to be created this summer, as unemployment benefits expire and summer travel spurs economic activity.

If employment does not meet these aggressive expectations, don’t be shocked if the market surges higher in the near term. I would recommend maintaining a balanced portfolio designed to maximize returns over the long term. Don’t try to make big bets amid the uncertain conditions that will cloud the next few quarters.

More difficult sled to come for airlines and hotels

Travel restrictions reappeared last month in parts of Europe, Asia and Australia, due to the spread of the Delta coronavirus variant. This weighed on travel and hospitality stocks which have international exposure.

A caveat here: We don’t really know how the next phase of the pandemic might play out. Vaccinations, widespread immunity, and government responses could make the Delta variant a relative non-issue, at least compared to the 2020 crisis. However, the Indian scenes of recent months have really swayed regulators. Even if this emerging threat quickly subsides and travel restrictions are relaxed, damage will be inflicted in the first few weeks of the month. It might be difficult for these stocks to recover so quickly.

Value investors may be looking to get started airline actions, cruise lines and hotel chains after these industries were beaten in June; the recent drop could end up being a great entry point. But don’t be shocked if things get worse before they get better: there’s still plenty of room to step back.

We’ll kick off profit season with a mixed bag

The first trimester was one of S&P 500is the best ever. Both earnings and profits smashed analysts’ estimates for the majority of stocks, with sales increasing at the fastest pace in more than a decade. This was driven by fundamental economic strength, but was also supported by stimulus checks and low interest rates.

Things will be different in the second trimester, but the overall picture should still be positive. Stimulus checks are unlikely to play such a big role this quarter, and employment figures have also been weaker. As a result, retailers will not benefit from the same tailwinds. Lower financial market volatility will also weigh on corporate earnings. big banks, which benefited from excellent income from trading and asset management in the turbulent markets in the first quarter. Still, most signs point to corporate earnings showing a recovery and financial health in the S&P 500.

Big banks such as Goldman Sachs (NYSE: GS), JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Wells fargo (NYSE: WFC), and Citigroup (NYSE: C) will provide information on overall economic activity and their outlook. They will be followed by tech giants, such as FAANG actions, You’re here (NASDAQ: TSLA), and Microsoft (NASDAQ: MSFT), which can inform investors about consumer activity and technological growth.

Will the Q2 results be enough to satisfy analysts’ forecasts revised upwards after the first quarter? It would be hard. They will compete with higher expectations, especially as we annualize the reopening activity that took place last year in June. Remember, the last quarter included a significant boost in the stimulus.

If S&P 500 stocks crash after posting second quarter earnings, try reading past the headlines. This might not signal anything wrong with their long-term performance, and a dip after earnings might be a great time to grab those shares at a discount.

Any insight provided by the management teams of companies reporting early will be very informative and could cause market movement. Make sure your portfolio is prepared to absorb both upside and downside volatility.

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Ryan downie has no position in any of the stocks mentioned. The Motley Fool owns shares and recommends Microsoft and Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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