Stocks May Rally in July After Weak June, Analyst Says

Stocks may be poised for a rally in July following a weak June, according to an analyst at Freedom Capital Markets. The forecast comes as investors look for signs of a rebound after a challenging month for equities. The S&P 500 (SPX) fell roughly 1.5% in June, weighed down by rising Treasury yields and mixed economic data. The 10-year Treasury yield climbed above 4.4% during the month, compressing the equity risk premium and making stocks less attractive relative to bonds. According to the Fed model, which compares the earnings yield of the S&P 500 (around 5.2% based on trailing earnings) to the 10-year yield, the gap has narrowed to its smallest since 2007, historically a warning sign for equities. However, forward P/E multiples have contracted to about 20x, down from 21x in May, suggesting some valuation adjustment has already occurred.

The analyst, Jay Woods, noted that historical patterns often show a July bounce after a down June. Since 1950, the S&P 500 has posted a positive July return 70% of the time when June was negative, with an average gain of 1.8%. This seasonal tendency could provide a tailwind for the stock market, especially if economic data remains supportive. Woods highlighted that breadth indicators, such as the advance-decline line, have improved in recent sessions, indicating broader participation beyond mega-cap tech. Sector rotation may also be underway, with energy and financials showing relative strength, while defensive sectors like utilities have lagged. Additionally, corporate buyback activity is expected to pick up in July as earnings blackout periods end, providing a demand floor for stocks. For traders tracking real-time moves, NowPrice offers up-to-date stock quotes to monitor any potential rally.

Looking ahead, market participants will focus on upcoming economic reports, including jobs data and inflation figures, which could influence the direction of stocks. The June nonfarm payrolls report, due July 5, is expected to show a gain of 190,000 jobs, while the consumer price index (CPI) release on July 11 is forecast to rise 3.1% year-over-year. If the rally materializes, it may signal a shift in sentiment from the cautious tone seen in June. However, investors should remain aware of risks such as geopolitical tensions and central bank policy decisions that could impact the market. The Cboe Volatility Index (VIX) has remained elevated near 15, reflecting lingering uncertainty, and options-implied volatility suggests traders are pricing in potential swings of 1-2% around key data releases. A sustained move lower in the VIX below 13 would be a bullish confirmation for equities.