Welcome to our monthly stock market outlook, where we preview what the pros will be monitoring and what everyday investors should know. Understanding what's happening in the market can make you a smarter investor and help inform your long-term strategy.
The U.S. stock market just finished its best quarter since 1987, with the S&P 500 ending the three month period up nearly 20%. There would be more cause for celebration had the same benchmark not fallen a comparable amount in the first quarter.
Halfway through 2020, the S&P 500 is down 4% for the year. At its worst in March, this benchmark had fallen nearly 31% from its closing level in December. So traders on Wall Street will be focused on the potential economic recovery for the last half of the year.
The number of Covid-19 cases on the rise also raises a question that will be answered far from Wall Street: Whether or not schools are back in session come August or September.
"It's one of the most important things, in my view, as to whether we'll get an economic recovery," says Jamie Cox, managing director at Harris Financial Group. "None of the commerce can happen in earnest if there's not a facility for children to go back to school."
In July, traders will continue to monitor the pandemic, along with plans for a possible second stimulus check for Americans and the multiweek period known as earnings season — when publicly traded companies will disclose results for the second quarter.
Here's what you need to know about the month ahead.
What's happening: Earnings season kicks off midmonth. Over the month of July, one in four companies in the S&P 500 are scheduled to report results for the three months that ended June 30. Wall Street is bracing for the worst quarter since 2008, in the midst of the Great Recession, as analysts forecast that corporate profit fell nearly 44% when compared with the same period in 2019, according to data collected by FactSet.
"We know it's going to be bad," says David Joy, the chief market strategist of Ameriprise Financial. That said, some recent economic reports — including surveys gauging consumer confidence and housing activity — have improved, so corporate management could have additional insight about the pace of the recovery, he adds.
Why it matters: The upcoming earnings season will show how corporate America dealt with some of the worst months of the outbreak. Still, there may be surprises, predicts Cox, especially with banks that have weathered this downturn in a better financial position than the last recession.
The impact of the pandemic will be the main theme, though Cox will also pay attention to what companies say about customer demand. For example, he's been tracking spending on home improvements, which has been rising steadily for the past two months. "If renovations pick up, that's going to be very positive for the economy and markets."
What it means for you: The earnings season period is often accompanied by some wild swings in prices of individual stocks that can affect the broader market — and those moves may be more exaggerated now. At this point, however, investors have become more accustomed to market turbulence. Rather than letting these ups and downs spook you, tune out the news and forget you have an account — or seize a generational buying opportunity.
Video by Jason Armesto
What's happening: Debate about the potential for a second stimulus check began almost as soon as Congress passed the CARES Act back in March. President Donald Trump recently promised a second check, and there's a fairly limited amount of time to get that done since Congress breaks for a two-week recess on July 3 and another month-long recess on August 8.
What's more, the $600 a week in enhanced unemployed benefits put into place by the CARES Act is set to expire July 31.
"The calendar is pretty truncated, so the focus will be on how to get a new stimulus package passed by the end of the month," Joy says. "This is an election year, and they're very mindful of that."
Video by Stephen Parkhurst
Why it matters: The monthly labor report for June is due on July 2, and economists currently project that the unemployment rate edged down slightly to 12.3% from 13.3% previously. That report could influence how Congress views the need for additional economic aid to Americans, Joy says.
What it means for you: How much money you can expect is yet to be determined. House Democrats passed the $3 trillion HEROES Act in May, which includes more stimulus checks and an extension of the enhanced unemployment benefits, but the legislation stalled in the Senate. Other ideas floated include a temporary "back-to-work bonus" of up to $450 per week to help offset the loss of the enhanced unemployment benefits.
Still, it's likely you could receive more money from the federal government in the weeks ahead. And experts recommend three smart ways to use that money.
As has been the theme in recent months, the pandemic is likely to continue to dominate markets news in July. "Every headline about Covid-19 swishes the market around in one direction or the other," Cox says.
Uncertainty doesn't mean you should change your investment strategy, though. Instead, try to look at the market's recent rebound as a good reminder of why it's important to ride out periods of turbulence — and even, if possible, invest more money.
Strategists on Wall Street have become more optimistic, according to CNBC surveys. These experts now forecast that the S&P 500 will end the year about 7.1% lower than it began, based on their median estimate as of late-June. Back in April, they were forecasting declines of about 12% for the year.
Finally, look at what the market pros do during times like this. Legendary investor Warren Buffett has often offered advice for what "the average investor" should do, while Wharton School professor Jeremy Siegel recently told CNBC that a new stock market high this year is "a real possibility."
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