July Market Commentary

Market Commentary

US stocks posted another strong month in July driven by mostly positive economic news.  With about half of S&P 500 companies reporting second quarter earnings, 80% have reported positive earnings surprises. Although, many issued negative earnings guidance for the third quarter, signaling a slow down may be ahead.  U.S. employers added 209,000 jobs in June, below the estimate for 240,000.  Hourly wages grew by 4.4% from a year ago, slightly higher than expectations.  The unemployment rate fell to 3.6% in June from 3.7% the prior month.  Second quarter GDP rose at a 2.4% annualized pace, topping the 2% estimate. The strong quarter helped reduce investor recession fears. CPI rose 3% from a year ago in June, down from 4% in May, the lowest level since March 2021.  Core CPI, which excludes food and energy prices, increased 0.2% for the month and 4.8% over the past year.  Producer prices increased 0.1% over the past year, the smallest increase since September 2020.  Core personal consumption expenditures index, the inflation gauge the Fed prefers, was up 4.1% annually in June, the lowest annual increase since September 2021.  US retail sales surprised economists again in June increasing by 0.6% versus estimates of a 0.4% decline.  Demand for goods remained strong helping accelerate growth over the second quarter.  Existing home sales dropped 3.3% in June and 18.9% compared with last year, the slowest pace for June since 2009.

Foreign stocks increased in July outpacing US stocks for the month as some foreign central banks expect to pause their rate increases soon.  The European Central Bank raised its benchmark rate a quarter percent in July to 3.75%, but signaled it might soon pause its rate increases. In a surprise move, the Bank of Japan made changes to its monetary policy, signaling it would tolerate higher yields on longer-term Japanese government bonds. The BOJ has been an outlier among the world’s major central banks in not having to fight high inflation.  Inflation in the UK increased by 7.9% annually in June down from 8.7% in May.  While the rest of the world is fighting inflation, signs of deflation are becoming more prevalent across China. Prices charged by Chinese factories have been falling for months and prices for certain goods—including sugar, eggs, clothes and household appliances have been falling on a month-over-month basis amid weak demand.  Oil prices jumped approx. 15% in July, ending the month at $81.80 a barrel versus $70.64 the month prior.  Emerging markets outpaced developed markets in July, while developed markets have outpaced for the year to date.

Interest rates were relatively flat in July as investors focused on the improving inflation picture. Through out the month, Fed officials said they expected they would need to lift interest rates further this year after pausing increases in June.  The Fed resumed lifting rates at their July meeting with a quarter-point increase that will bring it in a range between 5.25% to 5.50%, a 22-year high. Chairman Powell said it was too soon to tell whether the hike would conclude the increases aimed at cooling the economy and bringing down inflation.  The yield on the 10-year Treasury increased in July rising to 3.96% from 3.81% in June.  Muni bonds performed best in July, while corporate bonds outpaced over the  year to date.  Shorter-term bonds performed better than longer-term bonds in July and over the year to date.