July Market Commentary

US stocks had a strong month driven by better than expected corporate earnings. Of the 58% of firms in the S&P 500 that have reported earnings through the end of July, 72% topped analyst estimates. They are also on pace to post consecutive quarters of double digit profit growth for the first time since 2011. Economic news has continued the trend of being solidly positive. While auto sales dipped, retail sales declined and inflation has eased, employers added 222,000 workers in June, well ahead of expectations, more people entered the workforce and April and May employment numbers were revised higher, US manufacturing activity expanded and posted its strongest reading in nearly three years, pending home sales rose 1.5%, above expectations, and second quarter GDP rose 2.6% as the country entered its ninth year of economic expansion. Oil ended the month above $50 a barrel for the first time in more than two months and rose 9% in July. US stocks gained 1.89% in July and are up 10.99% for the year to date.

Foreign stocks jumped in July, making it the top performing asset class, on an improving growth picture. The Eurozone’s economy picked up steam in the second quarter rising at 2.3%, an increase over the first quarter. Over the past 18 months Europe has grown at a faster pace than the US. Unemployment in the Eurozone has steadily declined over the first half of the year as well. Emerging markets outpaced developed markets for the month and year to date. In July, international stocks rose 3.54% making the gain for the year 18.20%.

Bonds gained over the month as interest rates remained relatively flat. At the Fed’s July meeting they announced they would begin reducing their balance sheet of bond holdings “relatively soon.” Investors believe this could mean as soon as the next meeting in September. The Fed Funds rate was left unchanged. The Fed still expects to raise interest rates one more time this year. The ECB delayed discussion on whether it should wind down its bond buying program over weakening global inflation. The Bank of Canada raised its policy rate a quarter percentage point to 0.75% for the first increase in seven years. The 10 year Treasury yield was flat in July ending the month at 2.29%. In July, generally intermediate term bonds topped shorter terms bonds and credit bonds were the top performing sector. The broad bond market ticked rose 0.43% in July, bringing the year to date return to 2.71%.