July Market Commentary

US stocks surged in July driven by strong corporate earnings and economic news.  While some companies posted weak results (notably Facebook and Netflix), 54% of firms in the S&P 500 have reported earnings to date and 82% have topped estimates.  Revenue is expected to grow 8.7%. During the month, tariffs went into effect on billions of dollars’ worth of a range of US and Chinese goods with more tariffs set to go into effect in August.  Economic news showed the US to be in a strong position with 213,000 new employees added in June, initial jobless claims reaching its lowest level since 1969 and the unemployment rate rising to 4.0% due to more workers entering the workforce.  US auto sales rose 2.1% in June, US retail sales gained 0.5%, manufacturing output rose 0.8% and durable goods orders increased 1.0%.  Finally, US GDP rose 4.1% in the second quarter, the fastest pace in nearly four years.  For the month, US stocks gained 3.32%, bringing their year to date gain to 6.64%.

Foreign stocks jumped over the month on a reduction in trade war fears for some regions and supportive monetary policy.  After meeting with the European Commission President, the US and Europe agreed to halt any further tariffs as they work to reduce trade barriers.  Of the European companies to report earnings to date 60% have topped revenue expectations.  After its meeting, the ECB left its key rates and monetary stimulus unchanged and said it would expect to keep interest rates low well into 2019.  Developed markets slightly outpaced emerging markets for the month.  International stocks gained 2.50% in July, but are down 1.24% for the year to date.

Bonds were flat for the month as interest rates edged up.  Minutes from the Fed’s June meeting showed officials were willing to raise the Fed Funds rate over the next year to a level that no longer seeks to spur growth. In testimony before congress, Fed Chief Powell gave a rosy assessment of the economy and said the Fed planned to continue to raise rates gradually.  However, if trade tensions escalated he said it could be a drag on the economy.  The 10-year Treasury yield rose over the month to finish at 2.96% up from 2.85% to start July.  For the month, longer-term bonds outpaced shorter-term bonds, with credit and muni bonds being the top performing sectors.  The broad bond market ticked up 0.02% in July. For the year to date, bonds have declined 1.59%.