Market Insights

Stocks fell again last week as recession worries increased, but there could be some positives as the second half begins.

The S&P 500 fell 2.2 percent between Friday, June 24, and Friday, July 1. The decline finished another negative quarter, however a bigger story was the Nasdaq-100’s 22 percent slide between March 31 and June 30. That was the tech-heavy index’s worst quarter since the end of 2008.

A question now facing investors is whether the decline represents a long-term buying opportunity. After all, growth stocks and the Nasdaq have been falling because of higher interest rates and inflation worries. But last week could have abated some of those fears amid evidence of slowing economic growth.

Consumer confidence, for example, fell more than expected to a 16-month low. “Consumers’ grimmer outlook was driven by increasing concerns about inflation, in particular rising gas and food prices,” Lynn Franco of the Conference Board noted in the report. She added there could be “weaker growth in the second half of 2022 as well as growing risk of recession by yearend.” Initial jobless claims, the Institute for Supply Management’s manufacturing index and construction spending missed expectations, as well.

A weaker economy might not sound like good news. But the news lowered bond yields, which is potentially a positive for tech stocks. Some commodities that fueled inflation earlier in the year also fell, including natural gas and grains. Investors may watch the price trends in coming week, especially with a new quarter beginning and earnings due in late July.

Bearish Window Dressing?

Semiconductors, retailers, metals and airlines were some of the biggest decliners last week. Most had been falling throughout the second quarter. That’s an example of so-called “window dressing,” when investors keep selling laggards through the end of a month or quarter. Could it provide opportunity for dip buyers this month?

Utilities were the biggest gainers last week and homebuilders continued to advance. Both of those groups potentially stand to benefit from lower interest rates.

General Mills (GIS) also jumped to a new all-time high after reporting strong numbers for the second straight quarter. The maker of brands like Cheerios and Pillsbury said it’s benefiting as high inflation drives more Americans to eat at home.

Charting the Market

The S&P 500 lost 21 percent of its value between December 31 and June 30. It was the biggest drop in the first half of a year since 1970.

Still, the index ended last week 5 percent above its bottom in mid-June. It also managed to hold a potential support level from March 2021. Did the index just made its first higher low since the bear market began on January 4?

Second, chart watchers may notice that the 10-day moving average has started to rise. Other times that it’s changed direction have been followed by further moves upward or downward. (See the chart below.)

Third, MACD made a higher low in June, even as the S&P 500 made a new low. That kind of “bullish divergence” can be a potential reversal pattern.

The Week Ahead

This week has some big monthly employment reports. Given the recent slide in interest-rate expectations, traders may view soft economic numbers positively. No major earnings reports are scheduled but investors may be on watch for preannouncements with the main results starting next week.

Today is quiet, but tomorrow brings ISM’s service sector index and minutes from the last Federal Reserve meeting at 2 p.m. ET.

ADP’s private-sector payrolls report and crude-oil inventories follow on Thursday morning. Both are one day later than usual because of Independence Day. Initial jobless claims are also due.

The Labor Department’s non-farm payrolls report comes out Friday morning.

Amazon.com’s (AMZN) Prime Day is also on July 12 and 13. While it’s set for next week, anticipation of the promotion could serve as a potential catalyst in coming sessions.