Global stocks rebound in July after a dismal first half of 2022

Global stocks were on track to post their best month since the end of 2020, rebounding from a wild first half of 2022 as expectations of easing rate hikes and upbeat earnings from big tech groups fueled a broad rally.

The FTSE All-World index of developed and emerging market stocks jumped 5.8% in July as sentiment was boosted this week by resilient quarterly updates from US tech titans that signaled the US stock sector dominant could withstand economic headwinds.

July’s strong performance contrasts with the first six months of this year, when the global stock index fell more than 20%, dragged down by the worst first-half performance in US stock markets of $44 billion on more than 50 years.

Amazon shares jumped 12% in premarket trading in New York on Friday after the e-commerce giant beat analysts’ quarterly revenue forecast and offered an optimistic outlook for the rest of the year due to the strength of its cloud computing business.

Microsoft, Apple and Alphabet, Google’s parent company, also issued more confident outlooks than investors feared, lifting the U.S. tech sector which has an outsized weight in global markets.

In a sign of improving investor sentiment, U.S. equity funds tracked by EPFR saw their largest inflow in six weeks this week, recording $9.5 billion in net new investment, according to Bank of America. The blue-chip S&P 500 has jumped more than 7% this month, with 86% of stocks listed on the index up since late June, according to FactSet data. Across the Atlantic, the European Stoxx 600 gained around 7%.

A period of weak data in the U.S. economy has helped ease fears that the Federal Reserve, the world’s most influential central bank, will continue to aggressively tighten monetary policy after raising interest rates sharply over the past seven first months of this year. Those views were reinforced on Thursday, when data showed the U.S. economy contracted for a second straight quarter, raising hopes that the worst inflationary cycle in four decades would moderate.

“Economic data has not been as strong [and] this was seen as less aggressive monetary policy going forward,” said Antoine Lesne, head of strategy and research at State Street SPDR ETF.

“The Fed will continue to rise, but not with as much force as the market had previously expected,” he added.

Friday’s futures pricing implied the Fed’s main funds rate would peak at 3.25% next February, from a range of 2.25-2.5% currently. By mid-June, those forecasts were at 3.9%.

Barclays strategists, however, warned that July’s strong performance in stocks and bonds “could be brought down to earth” by inflation that remains high following Russia’s invasion of Ukraine.

“The fundamental outlook remains clouded by the dramatic economic slowdown and high energy prices,” they said in a note to clients. “It is optimistic to believe that the Fed will soon be able to reverse course.”