Skip to content
Opinion
Mohamed A. El-Erian

Why Stocks Took a July Vacay From Fundamentals

A discouraging economy took a backseat to technicals and relative valuations. Inflation will have a lot to say about how long that lasts.

An unscripted remark from Fed Chair Jerome Powell lifted stocks.

An unscripted remark from Fed Chair Jerome Powell lifted stocks.

Photographer: Michael Nagle/Bloomberg

July was an illustration of the adage that “the market is not the economy.” US stocks had their best month in two years while the economy received discouraging news about both growth and inflation. But rather than illustrating another adage — “bad news is good news” — the contrast is a reminder that economic fundamentals are one of three main drivers of asset prices, and their influence varies over time.

With a return of 12% in July alone, the Nasdaq Composite Index recovered more than a third of the loss incurred in the brutal first half of 2022. The other, less volatile indexes also had a strong month, reducing the year-to-date losses to 10% and 13% for the Dow Jones Industrial Average and the S&P 500 Index respectively.