Bull Run Continues Despite Rising Warning Signs for Global Stock Markets

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  • Last week was positive for most stock markets around the world
  • Bullish sentiment rose 2.8 points to 30.6%
  • Friday’s U.S. jobs numbers pose significant near-term risk

Led by a rebound of +2.15% on the , the +0.36%, the +1.35%, the +0.22%, the +0.47%, the +0.37%, the + 0.81%, the +0.67% and the + gained 0.14%. The laggards are and , which respectively lost -0.13% and -032%.

With the numbers above, the global stock market ranking in 2022 is as follows:

  • British football +0.75%
  • Japanese Nikkei -2.14%
  • Spanish ibex -6.26%
  • French Cac -9.52%
  • Dow Jones -9.73%
  • S&P 500 -13.03%
  • Eurostoxx -13.33%
  • German Dax -14.55%
  • Chinese CSI -15.86%
  • Italian Eb -17.41%
  • Italian Eb -17.41%
  • NASDAQ -19.10%

Investor Sentiment (AAII)

* Bullish sentiment (expectations of a rise in stocks over the next six months) rose 2.9 points to 30.6%, implying the highest level of optimism since June 2. However, it remains below its historical average of 38%.

* Bearish sentiment (expectations that equities will fall over the next six months) is down 1.2 points to 38.9, remaining well above its historical average of 30.5%.

The money goes back to US funds.

Over the long term, we all know that the US stock market has performed very well, accumulating more than +10% per year on average for almost a century. We also know that along the way, investors have had to take some big dips, like the -20% drop in the first half of this year. For now, however, we are enjoying some respite.

Proof of this is, for example, the , which posted its third consecutive week of gains, its longest weekly streak since last April. Additionally, over the past 25 trading days, we have seen intraday gains of over +1% 13 times, a rare event.

This context is encouraging investors to return to US equity mutual funds, which have already accumulated more than 3 billion subscriptions in 2022.

Money is also flowing into the , as shown Bank of Americaof the survey of mutual fund managers. Dollar long positions are at levels not seen in 7.5 years. I am talking here about the strength of the dollar against other currencies.

Friday numbers don’t help

Friday’s US data was good and well above expectations. In fact, all the jobs lost during the pandemic have already been recovered.

But contrary to what one might think, these numbers are negative for stock markets because they imply that the Federal Reserve has no reason to slow its rate hike. Had the data been negative, they might have considered not pursuing such an aggressive rate hike cycle (which President Powell even alluded to).

With the current employment figures, there is a greater likelihood that we will see another 75 basis point rate hike at the

Next Fed meeting

in September.

European banks outperform

European banks have had one of their best quarters in a decade, as rising interest rates inflate net interest margins, i.e. the difference between the interest paid by the bank to the borrower and the interest charged to the lender.

15 of the continent’s 20 largest banks beat profit estimates on higher interest income and debt trading. The ten largest listed banks in the European Union recorded a combined profit of 13.9 billion euros, the third best in the last ten years.

In addition, provisions for non-performing loans declined in the quarter as banks built up reserves earlier in the year.

The chart below shows the , and we can see how 2020 was a turning point when the index fell to 2009 levels and touched strong support.

Stoxx 600 Banks monthly chart

August on the Stock Exchange

If we take the S&P 500 from 1950 to 2020, we have 39 times August was a positive month, and 32 times it was negative. The average movement is +0.5%.

The best August in history dates back to 1982, when the S&P 500 rose +11.6%. Conversely, the worst was in 1998, when the US broad index fell – 14.58%.

Earnings season: better than expected

More than 350 S&P 500 companies have already released their second quarter results, and the overall picture is quite positive.

Earnings growth is over 6%. Yes, it’s the weakest earnings growth since 4% in the last quarter of 2020, but really, given the scenario and the context in which we find ourselves, it’s not bad at all.

To highlight two companies that posted the biggest upside surprise in Q2 earnings per share: (NASDAQ:) at 424% and (NYSE:) at 103%.

Disclosure: The current author does not hold any of the titles mentioned in this article.

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