ASX July Winners: Easing inflation, AI, and an oil rally lure sidelined traders back to risky assets

• The ASX was higher by around 2.5% in July
• The best sectors were Tech and Energy
• We look at the best and worst performing ASX stocks for the month

For the month of July, most major indexes on the ASX rose by around 2.5%.

The local market closely tracked indices on Wall Street, where the Dow Jones and S&P 500 also finished around 3% higher.

Equities have in general been rising in July as traders anticipated a pullback in central banks’ monetary policies as punishing inflation rates begin to soften.

The US consumer price index rose just 0.2% in June, bolstering hopes the Fed Reserve may be done with rate hikes after pausing in July.

Back home, Aussie traders also turned bullish after the CPI report showed that our headline inflation had eased to 6% in June from 7% in May.

Despite both the Fed and RBA taking their feet off the pedals, JP Morgan analysts are warning investors against getting ahead of themselves.

“With no interest rate cuts in sight, ongoing QT (quantitative tightening) and our base case for macroeconomic slowdown, current multiples appear too high,” said the note from JP Morgan.

But things should be looking up from here, says UBS

With over half of the S&P 500 stocks having now reported their quarterly results, data shows that 73% of companies are beating estimates by 4.5% in aggregate.

UBS believes that profits are on track to decline 3–5%, but says the quarter should mark the bottom in year-over-year earnings growth.

“The pressure on profit margins, which was most prominent in 2022 also seems to be easing, and companies are guiding for a step-up in margins in Q3,” noted UBS.

“Lower inflation has led to a slowdown in revenue growth, but cost pressures are also easing,” it added.

On the ASX, the reporting season will begin in earnest this month.

Local companies here will also be facing earning pressures due to the challenging inflation environment, as well as a slowdown in our biggest trading partner, China.

Cyan Investment Management founder Dean Fergie said the market has “very low expectations” for corporate profits, but he’s optimistic about the smaller capped stocks.

“At the smaller end, I’d say there’s some upside risk if companies exceed these hurdles,” Fergie told the AFR.

The best ASX sectors were…

Sector wise, the best ASX performer in July was Energy, followed by Tech.

Tech stocks have been surging as a wave of interest in artificial intelligence (AI) helped the Nasdaq to rally 38% this year.

According to data from Refinitiv, the combined value of tech companies listed on the Nasdaq reached a massive US$22 trillion, up from US$18 trillion at the end of 2022.

Nvidia,  Apple, Microsoft, Alphabet, Amazon, Meta and Tesla – collectively called The Big Seven –  make up most of this year’s gains and  28% of the S&P 500 Index’s total value with a combined market cap of around US$10 trillion.

Analysts now warn about the danger of getting caught in a rally led by so few stocks. They argue that even if just one the seven stocks falter, it could mean an end to the current bull run.

Meanwhile, the ASX energy sector has climbed by 8% in July as crude prices surged by more than 15% during the month.

Oil has been defying the Chinese slowdown, and has instead rallied as traders believe supply will be super tight in the months ahead after Russia and Saudi Arabia announced production cuts.

Here are the 50 best performing ASX stocks for July:

Scroll or swipe to reveal table. Click headings to sort.

Potash explorer Agrimin (ASX:AMN) rose in July as the company continues toward establishing the Mackay Potash Project as the world’s leading seaborne supplier of Sulphate of Potash fertiliser.

“We have been undertaking Front End Engineering Design (FEED) level studies on key parts of the process flow and design,” said CEO, Mark Savich.

1st Group (ASX:1ST) rallied after announcing the completion of its strategic restructure.

The company said the restructure has led to record customer receipts, significantly lower overheads, and a much-strengthened balance sheet in Q4.

One Click Group (ASX:1CG), a fintech platform, rose as it continues its exceptional recent business growth with the company surpassing 100,000 registered users on its fintech platform.

27,000 new users have now registered on the platform in the past month or so, equating to a 37% increase in that time.

Pointerra (ASX:3DP) rose after announcing a 10-year energy utility program in the States.

Its existing customer Entergy, a Fortune 500 company, has selected Pointerra’s US EPC partners for its 10-year, US$15 billion grid resilience CAPEX program.

Meanwhile, recruitment tech company AD1 Holdings (ASX:AD1) rose after entering into a three-year renewal agreement with the Victorian government for the continued delivery of its ApplyDirect’s recruitment solutions software.

Here are the 50 worst performing ASX stocks for July:

Scroll or swipe to reveal table. Click headings to sort.

8VI Holdings (ASX:8VI) fell as it announced a corporate restructuring initiative as part of measures aimed at securing long-term survival and sustainability of the company.

Bowen Coking Coal (ASX:BCB) fell after agreeing to sell the Broadmeadow East Mine to the Burton-Lenton Joint Venture (BLJV) in a cash and royalties transaction for $13m and royalties.

Medical diagnostic devices company AnteoTech (ASX:ADO) meanwhile slipped in July following a $4.m placement to sophisticated and professional investors, and a $2m Share Purchase Plan to retail investors.