Market Commentary – July 2022

July 2022 Global Market Commentary

Global markets rebounded in July 2022 as investors anticipated global central banks to ease their tightening measures following new evidence of a slowing economy. The MSCI World Islamic Index and the Dow Jones Sukuk Index rose by 6.1% and 1.6%, in July, respectively.

In July, the Federal Reserve raised interest rates by 75 basis points to 2.25% – 2.50% target range. This was the fourth consecutive rate hike, pushing borrowing costs to their highest level since 2019. The central bank has indicated that the pace of hikes may slow in order to assess the impact of the policy adjustment on the economy and inflation.

GDP in the United States fell for the second time in a row in Q2.

Rising interest rates and high inflation took steam out of business, real estate, and consumer spending. However, the U.S. economy is not in a broad decline owing to the strong job market. Unemployment remains at reasonable levels, and payroll additions have increased.

The S&P 500 gained 9.1% in July 2022, which has been the biggest monthly increase since November 2020. Q2’ 2022 corporate earnings have been stronger than expected. So far, 77.8% of the 279 S&P 500 companies that have reported earnings have exceeded expectations. Speculations that the Federal Reserve may not need to be as aggressive with interest rate hikes also positively influenced the S&P 500. Upbeat forecasts from Apple and Amazon support the idea that two heavyweights in the index appear to be able to navigate through these challenging times.

In Europe, the European Central Bank raised its benchmark rate by 50 basis points, bringing the deposit rate to zero, for the first time in over a decade. The larger-than-expected hike is aimed to combat undesirably high inflation in the Eurozone. This comes at a time when the region’s economies are slowing while also facing an Italian political crisis after Prime Minister Mario Draghi resigned.

The Chinese market fell as investors were alarmed by signs of a renewed crackdown on the tech sector, an escalation of the property developer crisis, and a rebound in coronavirus cases in July 2022. A lack of fresh stimulus at China’s Politburo meeting further left markets disappointed last month.

Markets may remain volatile in the coming months as the Federal Reserve continues to raise interest rates, causing economic and earnings growth to slow down. Markets will hold off on sustained rally until inflation falls significantly.

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