Stocks add to gains, shrug off Fed and data fears

Investors on Tuesday sloughed off dour housing data, choosing instead to focus on encouraging second-quarter earnings that have mostly absorbed the brunt of spiking interest rates and a slowing economy. The big picture: The S&P 500 popped by nearly 3%, with markets choosing to downplay a drop in June housing starts.

• Tech stocks also joined the party, rallying by over 3% even as uncertainty reigned ahead of Netflix’s Q2 report (Spoiler alert: the streaming giant managed to clear a lowered bar of expectations).

Why it matters: With recession fears on the front burner, a brutal bear market has gripped Wall Street for months.

• Meanwhile, the Federal Reserve is poised to deliver yet another dose of tough monetary medicine next week to tame roaring inflation, underscoring the headwinds that have undermined sentiment about the economy.
• Still, the early batch of corporate earnings has mostly defied low expectations, despite rising layoff announcements, and a resurgent dollar that threatens the outlook for the remainder of 2022.

What they’re saying: Some market analysts believe the market is looking oversold and is ripe for buying — hence why benchmarks have quietly stitched together an improbable win streak.

• Bank of America found that its clients were net buyers of stocks for 3 consecutive weeks.
• “Retail and institutional clients led the buying (both have been net buyers for the last three weeks). Hedge funds returned to selling after buying the prior week,” the bank wrote on Tuesday in a research note.
• “The S&P 500 still trades 13 pct rich to the common bear case target of 3,400 because neither investors nor business owners see enough signs of recession to alter their behaviors. Yet,” Nicholas Colas, co-founder at DataTrek, said.

Thought bubble: After months of seemingly relentless volatility, can we believe that stocks are finally at (or near) bottom? Alas, a rally that takes place in a bear market is still…a bear market (or a “dead-cat bounce”).

• Given the challenges and the full slate of earnings ahead, the sustainability of this move is very much an open question.
• Still, if companies can continue defying inflation, slowing growth and a strong dollar, markets may yet turn the corner.