The S&P 500 rose 3.6% in July and reached a record high close of 2,175, as expectations of additional central bank stimulus fueled stocks, according to one analyst.
“I don’t think earnings season so far has been particularly impressive,” said Josh Mahony, a market analyst with IG Markets, based in London. “The focus isn’t necessarily on company strength. I think the focus is more on what’s going to happen from a monetary policy standpoint.”
He said overall market sentiment is shifting to an “easing mindset,” which is good for the stock market. That mindset includes expectations of a rate cut by the Bank of England following its policy meeting on Thursday. This comes after the Bank of England left rates unchanged during its July policy meeting as it wanted to wait for more economic data to accurately gauge the potential fallout from the June 23 Brexit vote.
Plus, last week, the Bank of Japan raised the amount of exchange-traded funds it purchases on an annual basis.
As for the U.S. Federal Reserve, conflicting events took place last week, adding to the uncertainty of when the Fed will make its second rate hike since pushing interest rates near zero back in December 2008, following the financial crisis. Last Wednesday, the Fed’s statement hinted at a near-term rate hike, saying that “near-term risks to the economic outlook have diminished.”
On Friday, second-quarter gross domestic product rose just 1.2%, missing estimates of 2.6%, according to a report from the Bureau of Economic Analysis. This may suggest the economy isn’t strong enough to withstand another rate hike. The weak print came amid a fall in business investment. Consumer spending, which accounts for two-thirds of GDP, rose 4.2%.