July Market Commentary

US stocks rose in July supported by the Federal Reserve (Fed) and better than expected corporate earnings.  Comments made by Fed Open Market Committee members during the month nearly guaranteed an interest rate cut at the Fed’s July meeting, which the Fed delivered on to close out the month. With 45% of S&P 500 companies reporting earnings to date, 80% have posted better than expected results. Analysts now expect a 2.5% contraction in earnings for the quarter, better than the expected 3.0%.  Trump and Chinese leader Xi Jinping met after the G-20 summit and got trade talks restarted with the leaders agreeing to hold off on additional tariffs at the time. Economic news was once again mixed.  There were 224,000 new hires in June, topping expectations and more individuals began looking for work, a positive sign for the economy. Consumer confidence hit its highest reading of the year, and the first reading of second-quarter Gross Domestic Product (GDP) showed the economy grew at a better than expected 2.1%.  On the downside, manufacturing, auto sales, and home sales all have posted multiple months in a row of declines.  In July, US stocks climbed 1.49% and are now up 20.48% for the year.

Foreign stocks fell over the month driven by generally weak economic news.  The eurozone economy grew at a 0.8% rate in the second quarter, a steep slow down from 1.8% growth in the first quarter.  Manufacturing confidence fell to its lowest level in six years.  The European Central Bank said it will be cutting short term interest rates for the first time since 2016 and restarting its bond-buying program.  It said it expected to keep its key interest rate at -0.4% or lower through the first half of 2020.  The changes are expected to be announced at their next policy meeting in September.  The UK’s ruling conservative party voted strong Brexit supporter Boris Johnson to become the next Prime Minister. This sets up the possibility of the UK leaving the European Union (EU) without an agreement in place between the two, potentially creating significant trade and governmental disruptions.  China posted its slowest pace of growth since 1992, falling short of expectations with a second-quarter GDP of 6.2%.  Emerging markets were in line with developed markets in July but have trailed over the year to date.  Foreign stocks fell 1.14% in July but are up 12.42% for the year to date.

Bonds edged up in July as it became clear the Fed planned on cutting the Fed Funds rate.  The Fed cut the Fed Funds rate by a quarter percentage point at their July meeting for the first interest rate cut since 2008.  The move was made to help cushion the US economy from growing global economic weakness.  The target rate is now between 2.0% and 2.25%.  The Fed also announced it would end the runoff of its $3.8 trillion bond portfolio two months earlier than expected, a supportive move for the economy.  However, investors were disappointed in comments made by Fed Chair Powell as he did not allude to any further rate cuts later in the year.  The 10-year Treasury yield was flat over the month ending at 2.02%.  For the month, credit and municipal bonds were the top-performing sectors and longer-term bonds outpaced shorter-term bonds.  The broad bond market gained 0.22% in July, bringing their year to date return to 6.35%.