The markets appeared to be weak throughout July. Did the story on the monitor get it all wrong for the month?
Fixed Income 2-Yr Treas Yield 4.29% | 10-Yr Treas. Yield 4.09%
The month was friendly to the fixed income markets. We saw 2-year treasury and the 10-year treasury yields slide lower. Yield and price move in opposite directions. More importantly the spread between the two narrowed by 0.09%.
We have been in an inverted curve, where shorter issue debt makes more interest, for about 27 months. We are now closer to that curve normalizing than we have been since it inverted. Expected rate cuts from the Federal Reserve Bank (FRB) later this year have pushed the rates into this tight range.
Equities Dow Jones 4.41% | S&P 500 1.13% | NASDAQ 0.75%
Stock markets were not as fortunate as the fixed income markets. At the monthly performance level equity markets looked boring. However, the top of the month was put in on July 16th for the S&P andJuly 10th for the NASDAQ. This paints a much different picture. Early on, much of it had to do with earnings season. Later in the month the focus had shifted to weak economic data. Throw in an FRB waiting for a rate cut until September and you get what we had in July. Interestingly performance was not all bad:
Large Value: 3.91% Large Growth: -1.51%
Mid Value: 7.58% Mid Growth: 4.43%
Small Value: 12.04% Small Growth: 10.13%
*Morningstar.com – ETF’s used as asset class proxies, ILCV, ILCG, MDYV, MDYG, SLYV, SLYG
In all, while the headline looked like everything was getting beat up, in actuality markets were doing well. They were just redistributing from the focused trade for the last year in Large Cap Growth stocks.
Conclusion
While the NASDAQ and the S&P 500 get all the attention markets performed favorably across most asset classes. The redistribution and fixed income trades favored markets as a whole. While not seen on the surface, it cannot be ignored that July was a favorable month overall.
A Look Ahead…
August began much differently than July. Weaker Jobs data has spooked markets into calling for a rate cut from the FRB before their next scheduled meeting. It usually takes more calamity than that for the FRB to accommodate that request. However, at minimum markets are pricing in a high likelihood of a .50% cut from the FRB in September. The month will likely hinge heavily on economic data as it relates to employment and inflation. Also, Nvidia (NVDA) stock earnings close out the month’s activity. What has been the darling of the market has been fairly tarnished as of late, falling 25.54% since July 10th.
~ Your Future… Our Services… Together! ~
Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:
FOR MORE INFORMATION:
If you would like to receive this weekly article and other timely information follow us, here.
Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.