Stocks enjoy their best month since 2020

The stock market wrapped up a chaotic week, with solid earnings from tech mega caps bringing solace to traders worried about the many crosscurrents rattling economies around the globe.

After a horrific first half, the S&P 500 had its best month since November 2020 and the Nasdaq 100 had its strongest performance since April of that same year. Tech led gains Friday, with Amazon.com Inc. and Apple Inc. soaring as higher revenues from the pair of iconic powerhouses countered fears about a profit slowdown at time when the industry is rethinking its staffing needs.

Despite worrisome signals from economic proxies such as Walmart Inc. and UPS Inc., the earnings season as a whole has turned out to be brighter than expected, with about 75 percent of the S&P 500 companies that have reported results beating analyst estimates. That’s fueling speculation that corporate America will be able to weather the perfect storm of hot inflation, jumbo-size rate hikes and dwindling growth.

Bloomberg Intelligence’s fair value model suggests a modest recession may have been priced in after this year’s stock selloff. That means a price recovery could emerge with an earnings trough in the second half of 2022.

“The fact that earnings are not as bad as feared is a very constructive thing for the markets,” said Anastasia Amoroso, chief investment strategist at iCapital. “The fact that we have priced in a whole lot of slowdown already, that too has just de-risked the landscape. So I think what can happen for the next couple of weeks is that the technical momentum really keeps moving stocks higher, while we wait for the next Fed move or the next inflation print.”

Despite the big rebound in stocks this month, several market watchers are still skeptical about a sustained rally.

“This is a rally within a bear market rather than the start of a new bull market,” said David Donabedian, chief investment officer of CIBC Private Wealth US.

Donabedian says optimism about the Fed potentially ending its tightening cycle earlier than expected is “more hope than reality.” He sees further rate hikes and says there’s still a lot of work ahead to bring down inflation, adding that “a slowing job market is on the way.”

Two key U.S. price gauges posted largerthan-forecast increases, with the personal consumption expenditures index — which forms the basis for the Federal Reserve’s inflation target — climbing at the fastest pace since 2005. Consumers’ long-term inflation expectations also remained elevated.