Stocks powered higher in July, invigorated by signs that the central bank’s battles against inflation may prove successful without dumping the economy into recession. June’s consumer price report showed a 3% increase from a year ago. While still above the Fed’s 2% long-term target, the result was lower than most expected and caused many to rethink both inflation and interest rate assumptions for 2024.  

Meanwhile, US GDP was shown to grow at a 2.4% pace in the second quarter. This showed economic activity remains on a good trajectory but was not strong enough to stoke fears of more than one more likely interest rate hike.   

Major US and International indexes each finished roughly 3% to 4% higher for the month. Bonds were flat as the encouraging inflation numbers were offset by comments from Fed members suggesting they are not yet ready to declare victory on the inflation front.  

Market gains were widespread

Another positive was that market gains were widespread, including small cap and value stocks. Most of the rally in the second quarter was driven by just a handful of mega cap technology companies. Broader advances feel more sustainable if the 2023 rally is going to prove to be the start of a prolonged bull market.  

Earnings so far have been mixed. Aggregate S&P 500 earnings are projected to decline in the second quarter from last year but are on track to beat reduced analyst expectations.  

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