A Macro View: July Monthly Recap
Domestic equity markets continued their move higher in July, with the major US indices closing the month near record-level territory. Market participants focused their attention on positive developments, including strong economic data, robust corporate results, and an improving global macro environment, filtering out the negative media attention on the Executive branch and Congress’s lack of progress on healthcare and tax reform. With more than two-thirds of the S&P 500 Index’s (the Index) companies having reported second-quarter earnings, fundamentals are quite strong, with the Index on track to post double-digit earnings growth, marking the second straight quarter at those levels. At its July meeting, the Federal Open Market Committee (FOMC) left its key benchmark rate unchanged and stated it will begin reducing its bond holdings “relatively soon.” The first estimate of second-quarter gross domestic product (GDP) rose +2.6%, on an annual basis, a pickup from +1.2% in the first quarter, but was slightly weaker than expected. Personal consumption, the largest part of the economy, was higher by +2.8%.
Within this context, domestic equities were mostly higher during the month. The S&P 500 gained +2.1%, pushing its year-to-date (YTD) return to +11.6%, while larger gains were seen in the tech-heavy NASDAQ Composite, which advanced +3.4% and is now up +18.6% YTD. The Russell 2000 Index of small cap stocks underperformed relative to the Russell 1000 Index of large cap stocks, with a monthly return of +0.7 %, compared with +2.0%, respectively. Growth stocks outperformed value stocks, with 124 bps of difference between the Russell 3000 Growth Index’s return of +2.52% and the Russell 3000 Value Index’s return of +1.28%. In terms of sector performance, the top performers were Telecommunications and Information Technology, with returns of +6.4% and +4.3%, respectively. Industrials and Consumer Staples were the main laggards, gaining +0.1% and +0.6%, respectively. Commodity prices rose, with the broad commodity index gaining +2.3%, while real estate investment trusts (REITs) were positive but trailed their peers.
International equity markets mostly outperformed their domestic peers in July due to US dollar weakness and continued economic strength abroad. The MSCI World ex-U.S. Index increased by +3.0% for the month and is now up +16.2% YTD. International developed markets rallied behind continued improvement in the global economic landscape and a weaker US dollar. Preliminary readings of second-quarter Eurozone GDP growth were +0.6% quarter-over-quarter and +2.1% year-over-year, which matched expectations and was up from the first quarter. The MSCI EAFE Index, measuring performance of international developed markets, gained +2.9%. Emerging markets equities continued to post strong returns, with a gain of +6% on the MSCI Emerging Markets Index, which is now up +25.5% YTD. Regionally, China, EM Latin America, and EM Asia were the best relative performers, with returns of +8.9%, +8.3%, and +5.6%, respectively. The MSCI Europe Index gained +3.0% and is now up +18.8 YTD. Japan was the poorest relative performer but still posted a +2.0% gain.
Fixed-income markets posted modest gains during the month. The yield on the 10-Year Treasury Note began July at 2.30% and traded in a fairly tight range before closing the month at roughly where it opened, at 2.29%. Broad-based fixed income posted modest gains, with the Barclays U.S. Aggregate Bond Index increasing +0.4% for the month, and is now up +2.7% YTD. Global fixed income markets performed better, as the Barclays Global Aggregate ex-U.S. Index gained +2.7% and is now up +9.0% YTD, with a weaker US dollar fueling much of the return. The Barclays U.S. Corporate High Yield Index increased by +1.1% and is now up +6.1% YTD. Municipals posted a gain of +0.8%, mostly outperforming their taxable counterparts, and are now up 4.4% YTD.
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