Stocks Rebound on Positive Earnings and a Less Hawkish Federal Reserve

Canadian and American stocks have taken a beating since the start of 2022 amidst a backdrop of surging inflation, rising interest rates, and concerns about a recession. But investors have been given a slight reprieve after a fall in long-term inflation expectations suggests the U.S. Federal Reserve will not raise its key lending rate a full point when it next meets on July 27.

This comes even after the June consumer price index showed that inflation hit 9.1%, a fresh 40-year high. With fears of a 100-basis point rate hike, dialed back investors can now focus their attention on earnings season which just kicked off. And so far, the results have been encouraging.

Why Are Stocks Rebounding?

As of this writing, 244 of the companies listed on the S&P 500 will be reporting earnings over the next two weeks. Those that have already reported their earnings are beating expectations.

So far, 7% of S&P 500 companies have reported their second-quarter financial results. Of those, 60% have reported earnings per share above estimates. That’s lower than the five-year average of 77% but still significant in light of the current economic environment.

In Canada, the outlook is a little more bullish, even though the Bank of Canada raised its overnight lending rate by one percent to 2.5%, which is the biggest rate hike in 24 years. Total earnings for companies in the S&P/TSX Composite Index are expected to rise by 98% year-over-year. Companies may be beating expectations in the second quarter but we’re not out of the woods yet.

If anything, earnings coming out over the next number of weeks will allow investors to see which companies are handling supply chain issues, inflation, the rising cost of raw materials and labour.

Concerns about a recession and persistent red-hot inflation means that investors may not necessarily reward stocks that beat earnings expectations but they could burn those that miss.

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North American stocks are rebounding on solid second-quarter earnings results and growing optimism that the U.S. Federal Reserve will not hike interest rates by a full percentage point. That said, inflation has not peaked and fears of a recession continue to grow.

The stock market has done well over the last number of days but it will continue to be sensitive to any news that could change that narrative. Regardless of what the markets are doing though, the trading professionals at Learn-To-Trade.com can teach investors how to take advantage of market volatility and profit no matter what happens during earning season.

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