July got off to a positive start, much to investors' relief after the drubbing of the first half, with the S&P 500 index up more than 2% to take it back over the 3,900 mark for the first time in nearly a month.

The tech-focused Nasdaq 100 index fared even better, adding more than 4% to take it back over 12,000 points as risk appetite returned to markets.

The big driver this week was the economy, specifically the jobs data, with Thursday's weekly initial jobless claims hitting 235,000, their highest since mid-January, although Friday's non-farm payrolls were above estimates.

A rise in claims means the economy is slowing, which bolstered hopes the Federal Reserve would hold off from raising rates by 75 basis points (0.75%) at its next meeting.

A sharp drop in WTI crude futures from over $110 to $102 per barrel also fed into the argument against hiking rates aggressively.

GAMESTOP

Investors flocked to the poster child for meme stocks, GameStop (GME:NYSE) rallying 15% on 7 July after announcing a four-for-one stock split in the form of a dividend. The jump may have seasoned investors scratching their heads since nothing fundamental has changed for the video games seller, yet the company is suddenly worth $1.5 billion more than it was the previous day.

Stock splits have gained popularity, with Tesla (TSLA:NASDAQ), Alphabet (GOOG:NASDAQ) and Amazon (AMZN:NASAQ) pulling the trigger this year. But in their case, it solved an accessibility issue for small investors - it's tough to buy a stock at $1,000-plus with a couple of hundred quid a month of investment savings.

But at $135, after the share surge, GameStop doesn't have that problem to solve, leaving investors of a more cynical leaning to wonder if this is little more than marketing jiggery-pokery to get a short-term bump in the share price. It is certainly difficult to see the rationale otherwise.

LEVI STRAUSS

The doyen of denim Levi Strauss reported quarterly earnings ahead of expectations for the three months to 29 May.

Revenue came in at $1.46 billion versus the £1.43 billion which had been pencilled in by analysts with earnings per share markedly higher than the forecast $0.23 at $0.29.

Like many popular brands Levi is pursuing a strategy based on boosting its direct-to-consumer sales and it is also increasing its online presence. These initiatives clearly helped to support the strong numbers.

The company may also be benefiting from a pandemic-inspired move away from formal wear in working and social environments.

It also seems to have been able to pass on rising costs to customers without hurting demand, testament to the enduring strength of the 169-year-old brand.

Management showed some faith in the outlook by lifting the quarterly dividend from $0.10 to $0.12 per share.

US BANKS

As is traditional the early proceedings of the latest quarterly US earnings season will be dominated by the banking sector when it kicks off.

On 14 July JPMorgan Chase (JPM:NYSE) and Morgan Stanley (MS:NYSE) report followed on 15 July by Citigroup (C:NYSE) and Wells Fargo (WFC:NYSE).

There will be scrutiny on the impact higher interest rates are having on mortgage demand - with reports the big banks are cutting back staff in these areas.

Wells Fargo is the biggest player in the US mortgage market and the three-month period it is reporting on (from April to June) is traditionally the season when Americans make home purchases.

There may also be some focus and clamour for US banks to up returns to shareholders after a recent stress test of the industry by the US Federal Reserve to see if they could cope with an economic downturn saw most sail through with flying colours.

 

DISCLAIMER: AJ Bell is the owner and publisher of Shares. Tom Sieber owns shares in AJ Bell.

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Issue Date: 08 Jul 2022