The Rally Continues

By Alex Eule  |  Thursday, July 21

The Rally Continues. Stocks rallied for a third straight day, with the Nasdaq Composite gaining 1.4% and the S&P 500 up 1%. The indexes are now up 13% and 9%, respectively, from their June lows.

The European Central Bank surprised investors with a larger-than-expected half-point rate hike. The ECB has now clearly joined the Federal Reserve in a global fight against inflation.  While the ECB is still behind the Fed in its rate-hiking cycle, the more aggressive move today suggests the two central banks are aligned in their thinking. That could help ease the soaring dollar, which recently reached parity with the Euro.

A stronger dollar has generally been a headwind for U.S. companies that sell products abroad, and management teams have been citing the dollar as a drag in recent earnings calls. Today, the dollar fell 0.45% against the Euro, though it's still up 15% from a year ago. Brad McMillan, chief investment officer for Commonwealth Financial Network, says the dollar's strength is "part of a normal cycle of currency values": 

What drives that cycle is a combination of a few things: U.S. interest rates compared to international rates, general inflation levels, and the level of fear in markets that could drive a flight to safety in U.S. assets. Right now, all of these are positive for the dollar, strongly so for several. In many ways, this is a perfect storm of strong dollar effects. Again, over time each of them will fade.

In the meantime, earnings continue to keep investors busy. Shares of Tesla jumped nearly 10% today after the electric vehicle pioneer reported better-than-expected profit margins in the second quarter. Barron's Al Root notes that it was Tesla's sixth consecutive earnings beat. 

The news was less positive for Snap, which reported its worst ever sales growth as a public company and declined to offer an outlook for the current third quarter. The social media stock tumbled 27% in late trading tonight, dragging down other online advertising plays, including Meta Platforms (-4.7%), Alphabet (-2.8%), Pinterest (-5.9%), Roku (-3.8%), and Twitter (-1.9%). Twitter reports its own results tomorrow morning, though those numbers matter less right now than the ongoing takeover battle with Elon Musk. Twitter, which is taking Musk to court to try to force him to complete his agreed-upon acquisition, has said it doesn't plan to hold its usual earnings call after releasing its quarterly update tomorrow.

DJIA: +0.51% to 32,036.90
S&P 500: +0.99% to 3,998.95
Nasdaq: +1.36% to 12,059.61

The Hot Stock: Tesla +9.8%
The Biggest Loser: Carnival -11.2%

Best Sector: Consumer Discretionary +2.3%
Worst Sector: Energy -1.8%