The Independent Market Observer

Looking Back at the Markets in July and Ahead to August 2022

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Aug 3, 2022 3:07:24 PM

and tagged Commentary

Leave a comment

Looking BackJuly was a surprisingly good month for financial markets, with the greatest monthly gains since 2020. The S&P 500 was up 9.22 percent during the month, the Dow Jones Industrial Average was up 6.82 percent, and the Nasdaq Composite was up 12.39 percent. While all three indices are still down for the year, last month reversed a significant share of the losses. Internationally, developed markets rebounded, although emerging markets didn’t do as well as expected.

Looking Back

Interest rates. Interest rates drove the markets in July. While the Fed is publicly committed to keeping rates rising until inflation is under control, there are signs that inflation is moderating. In July, we also experienced growing concerns about a recession. The mid-month announcement stating that the economy contracted in the second quarter—for the second quarter in a row—led to headlines proclaiming a recession and spooked markets. Between signs of a peak in inflation and recession worries, which have markets expecting a cut in rates next year, interest rates pulled back sharply in July. After peaking early in the month, the U.S. Treasury 10-year yield dropped sharply, from a high of almost 3.1 percent to 2.65 percent.

Valuations. Lower rates typically mean higher stock valuations, and this was a significant driver for the strong July performance. The drop in rates started to reverse in early August, so there could be more pressure on markets. That said, even though valuations have risen a bit, they remain in a pre-pandemic range, which should limit the impact over the next couple of months.

Corporate earnings. With valuations in a reasonable range, the principal fear shaking markets in August will be the effects of a recession on corporate earnings. Looking back at July, which was the start of the second-quarter earnings season, the data was not as bad as expected. While growth had slowed, aggregate earnings continued to surprise to the upside. That trend will likely continue in August for second-quarter earnings. As more data is reported, however, attention will shift to the expected third-quarter earnings, which brings us back to recession worries.

The economic data. While recession fears worsened significantly in July, the actual economic data was not nearly as worrisome. Hiring, in particular, remained strong, and consumer confidence showed signs of stabilizing. Business confidence and investment also remained healthy. So, while the economic growth report was negative, most other data was positive.

Looking Ahead

Moderating headwinds. Hiring is expected to slow somewhat but remain above pre-pandemic levels, even as the labor market approaches full employment. Consumer confidence was hit hard by higher gas prices, but as oil prices have pulled back, confidence should continue to stabilize. While there are headwinds, they should continue to moderate in August, supported by the substantial momentum of the economy.

International turbulence. August should see other worries moderate as well. Besides inflation, interest rates, and the weak economic report, news from the war in Ukraine and the Chinese Covid-19 shutdowns also hit the headlines in July. The worry and the damage were real—but, looking forward to August, both of those risks have stabilized. Overall, the economic effects of the major international issues should continue to fade in August, with supply chains easing even as oil and wheat prices pull back. Covid-19 could surge again, Taiwan may become a flashpoint, and the Ukraine war could expand. And when and if those bad things happen, we will see more market volatility. As always, the headlines will drive short-term market performance.

Market improvement. July marked a significant rebound in markets, even as economic fears grew. Looking forward, August should start to indicate whether the rebound will continue. With the economy still reporting positive data, and with worries starting to moderate, we should see valuations remain stable and possibly improve. We may even see appreciation, as fears about earnings growth begin to moderate.

A Promising Rebound

Looking back at July, we started the month with the fear that a lot of bad things could happen—but what we actually saw was a rebound. As we move forward into August, many of those fears appear to already be priced in, while others do not look nearly as bad as they did a couple of months ago.

July’s rebound was the markets taking stock of the fears versus the reality. And while risks remain, it looks like August could provide even more evidence that things are looking up.

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®