Equity markets were once again higher in July, although we saw the return of volatility and a leadership change from large cap growth to small caps and value stocks driving the gains. On balance, the S&P 500 gained +1.2% this month, with value stocks rising +4.8% while growth names fell by -1.3%. The blue-chip index is up +17% year-to-date.
Previously beaten-down small caps exploded higher in July, with the Russell 2000 index gaining +10.1% for a +12% full-year gain.
Overseas stocks rallied into month-end for a +2.3% gain in July, with the MSCI ACWI ex-US index up +8% YTD.
Bond prices advanced on the second consecutive month of favorable inflation data, with markets now confident of at least one Fed rate cut to come in September. The Bloomberg Aggregate Bond Index gained +2.3% in July and is back in positive territory for the year at +1.6%.
The Bloomberg Commodity Index fell -4% despite another record monthly close from gold prices, with concerns over lower demand outpacing any potential boost from geopolitical tensions.
Our proprietary Three Dials readings remain unchanged through the end of July, as we outline below:
- Market Sentiment and Momentum: (Positive ➕)
After rallying over 10% from April’s lows, the S&P pulled back from overbought levels before finding important support around its 50-day moving average. With small-caps and value stocks leading the way in July, we’re seeing a more broad-based rally to support this ongoing bull market, leaving our Momentum Dial Positive.
- Economic Fundamentals: (Negative ❌)
The Institute for Supply Management said in July that the services sector of the economy contracted for the second time in three months, indicating that despite a Q2 GDP report that surprised to the upside, plenty of weak patches remain. Our Fundamental Dial remains in a Negative position through the end of July.
- Valuation: (Negative ❌)
Corporate earnings have been strong so far, with Q2 earnings on pace to grow roughly 10% over the last twelve months. However, stock prices are up over 20% during that same period, which has only led to a widening gap in price-to-earnings ratios. As such, our Valuation Dial remains Negative.
Our composite Three Dials reading remains in a Moderately Defensive position through the most recent month-end, with two dials Negative and one dial Positive.
Sources: Morningstar
Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.
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