My 3 Biggest Stock Market Predictions for July – The Motley Fool

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Investors should always make a point of keeping their finger on the pulse of the broader market. That’s especially true right now. Between rampant inflation, worldwide geopolitical turmoil, and the subsequent bear market most stocks are still in, there are myriad factors impacting people’s portfolios. Everyone’s being forced into becoming a forecaster.

With that as the backdrop, three major news items with market-moving potential are on the near-term radar. Here’s a closer look, as well as a prediction of how these three predictions are apt to pan out.

Image source: Getty Images.

1. The Federal Reserve will raise the federal funds rate by 100 basis points

Most of the time, the Federal Reserve makes a point of easing into new monetary policy by virtue of changing the federal funds rate only 25 basis points — a quarter of one percentage point — at a time. This measured approach prevents its efforts from jolting the economy into a recession.

When the central bank’s chiefs get their next scheduled opportunity to change the current federal funds rate on July 27 though, they’re not likely to be so conservative. The interest rate futures market suggests there’s a 67% chance the FOMC will raise rates by 75 basis points, while there’s a 33% chance we’ll see a full-point rate hike. Given that last month’s overall consumer inflation pace hit a four-decade high, however, the Fed is feeling pressure to act more aggressively than traders might suspect.

2. We unofficially enter a recession, by virtue of Q2’s GDP contraction

It may not be a perfect indication of the nation’s economic health, in that it ignores many of the nuances of our current economic landscape (like side gigs, or pandemic-prompted shutdowns). But it’s one that doesn’t require interpretation or leave itself open to debate. That’s the United States’ GDP, or gross domestic product, the sum total of all the goods and services delivered in any given quarter. The country’s GDP fell to the tune of 1.6% during the first quarter, according to data from the Bureau of Economic Analysis. If it falls by the currently expected consensus of near 1.4% for the second quarter when the first estimate of Q2’s data is unveiled on July 28, that second consecutive contraction will mark the unofficial onset of a recession (it isn’t official until an eight-member committee from the National Bureau of Economic Research says so).

Don’t sweat it too much. GDP data is always backward-looking, while stock prices are forward-looking. That is to say, the recent market weakness may have been predicting a recession that’s already being unwound. On the flip side, simply hearing the words and seeing the data could spook lots of investors into selling.

3. Earnings roll in above expectations anyway

Finally (and in this very same vein), don’t assume economic weakness necessarily has to coincide with earnings weakness.

The irony is, consensus forecasts are already telling investors of this reality. Standard & Poor’s says the S&P 500 is on pace to earn $54.71 per share for the second quarter of the year. That’s up from Q1’s $49.36 and above Q2 2021’s figure of $52.05 per share. And, if history is any indication, the S&P 500 will likely outperform that consensus expectation.

Earnings season will be far from over by the time July comes to an end, but we should see enough numbers by then for investors to start believing that an economic headwind doesn’t automatically undermine profits for all companies. To this end, look for renewed willingness to step into stocks.

Two bonus predictions to factor in

Those are the three biggest, overarching predictions for the remainder of the month, although not the only noteworthy ones. There are two more to keep in mind as you navigate the next few weeks.

1. Oil prices — and oil stocks — continue to fall: Although the Federal Reserve’s only been tightening for a short while, expectations of higher interest rates have been at work for months, setting the stage for the current decline in commodity prices, including oil. Crude’s peak value near $123 per barrel in early June has since been pared back to near $100. In that, the underpinnings of oil prices are slow to take shape and equally slow to wither though, look for the current downtrend to continue driving oil prices lower. The U.S. Energy Information Administration expects an average price of only $94 per barrel of Brent crude for 2023. Energy stocks should continue weakening as a result.

2. Amazon bounces despite continued losses for e-commerce: Finally, while shares of e-commerce giant Amazon (AMZN 1.34%) fell sharply following the release of first-quarter results that were crimped by rising operating costs (like freight and personnel), look for the upcoming July 29 release of its Q2 earnings results to spark bullishness … but not because the company is apt to contain those costs.

Indeed, it’s arguable that Amazon’s shipping and employee expenses were higher during the second quarter than they were during the first quarter of the year. Prompting fresh bullishness, rather, will be investors’ realization that the bulk of Amazon’s profits doesn’t come from e-commerce anymore. Amazon’s cloud computing business accounted for three-fourths of last year’s bottom line, and the company added $31 billion worth of high-margin advertising revenue to its top line in 2021 to bring the tally to $469.8 billion. Both businesses have continued to grow in the meantime.

It’s still being judged as an online-shopping stock, but that understanding is now evolving and should evolve even more once the next round of quarterly numbers is released.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

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