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The stock market rally in July could be tested soon

In this article:
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Yahoo Finance Live’s Brian Sozzi breaks down the reasons why stocks have rallied in July.

Video Transcript

JULIE HYMAN: Of course, it's been a roller coaster ride for the markets. The current trend, thus far, in July has been up, up that like--

BRIAN SOZZI: Like, that up, up.

JULIE HYMAN: --chick, chick, chick, chick, [? pshoo. ?] Is that what's gonna happen to us?

BRIAN SOZZI: Tough to follow that one. But look, yes, this is me trying to decode the market rally so far in July. Now, of course, as we've mentioned throughout the show, very busy week on tap. But so far, it has been a pretty good July.

Some notable moves here-- NASDAQ up about 7.5%, the S&P 500 up close to 5%. And even we've seen that risk on tone go back to some of these very risky meme stock names, like a GameStop and AMC, both with double-digit gains so far in July.

So what in the world is going on here? A couple of things I cooked up here. One, you saw the Fed really push back a 100 basis point rate hike. And ever since they made that-- or did that push back a couple of weeks ago, that lit a fire under stocks.

Next up, a lot of data hasn't been great, the economic data. But a lot of strategists are viewing this as no signs of a deep recession yet. Check, done, market likes to see that. Next, easing price pressures. You go back to that Philly Fed report-- manufacturing report from last week, prices paid down for three consecutive months. Market like to see that.

And then so far, no real earnings per share disasters, outside of course, Snap. That was a full on disaster. And maybe we'll get some more this week. But so far, we haven't seen that report, that really brutal, ugly, really bad report. And I'll add Weber there in this morning, that wasn't good. But by and large, I haven't seen that so far in July.

Now, this all could be tested very soon. The Fed is still likely to come out later this week and raise rates by 75 basis points. That is still a very, very large move. Also, too, big week of corporate earnings on tap-- Coca-Cola, UPS, you're gonna get a next level read on the US economy and where things are headed and where they may not be headed.

And last but not least, we're gonna get GDP this week. And according to the GDP Live Now function online, we might see GDP in the second quarter decline 1.5%. It declined 1.6% in the first quarter. So that will likely spur all sorts of recession talk. Are we in a technical recession? Are we not in a recession? Whatever it is, that talk will come up.

My take is this, look, a lot of this could be unwound. I think now is the moment where you take off those rose-colored glasses and look for things the way they are. I go back to what we saw out of Weber this morning, that is very, worry-- a very worrisome earnings report, as was Snap. You could see maybe a little bit of a pullback on some of these gains.

BRAD SMITH: Well, if you want some Google glasses instead, we can hook you up with those.

BRIAN SOZZI: You're the master.

JULIE HYMAN: Yeah.

BRIAN SOZZI: You're the master on Google Glasses.

JULIE HYMAN: I don't think people have rose-colored glasses on though. Sorry, what were you gonna say?

BRAD SMITH: Well, I was just gonna say, the question now is bear market rally or do we actually see the bottom set in?

BRIAN SOZZI: I'm not-- I'm not going to pick [INAUDIBLE]. I'm not going there. Maybe old me would have done that. But look, we have not seen disaster scenarios play out in July. So I think that's what the market is hanging its hat on.

JULIE HYMAN: I mean, I thought the PMI numbers were pretty dismal. I mean, the thing that-- I don't know that people are wearing rose-colored glasses. I think things are going to get bad. But maybe they think things are going to get bad enough-- going back to the beginning of the show and what we talked about-- that the Fed is going to pause. Maybe.

BRIAN SOZZI: So maybe they're wearing Google Glasses instead of rose-colored glasses.

JULIE HYMAN: Maybe.

BRIAN SOZZI: We'll go back and tweet that for the video.