July 2023 Stock Market Commentary
Ethan Pollard | August 04 2023
Equity markets continued their rally during the month of July, with stock prices moving higher across the board. The S&P 500, a broad benchmark for large cap US stocks, added +3% in July and is now up +21% in 2023.
Smaller companies continued to make up ground, with the Russell 2000 index gaining +6% in July for a +15% full year gain.
Overseas equities tacked on another +4% this month for a +14% year-to-date return on the MSCI ACWI ex-US index.
Within fixed income, the Barclays Aggregate Bond index ticked down slightly at -0.1% in July (+2.0% YTD). The ten-year Treasury yield ended the month just shy of 4%, with optimism around economic data dispelling recession fears for now.
Commodities rallied +6% in July, led by higher oil prices, though the Bloomberg Commodity Index remains in negative territory (-2% YTD).
Our proprietary Three Dials allocation model saw no changes during the month of July, as we outline below:
- Market Sentiment and Momentum: (Positive ➕)
While the first half of the year was defined by a concentrated rally centered around US tech stocks, we’ve started to see a more broad-based recovery play out, with long-term moving averages turning positive across the size and geography spectrum.
As indexes continue their march towards recovering their previous highs reached in 2022, our Momentum Dial retains its Positive reading.
- Economic Fundamentals: (Negative ❌)
The economic picture brightened in July, with Q2 GDP surprising to the upside, along with moderating inflation and improving unemployment claims. However, higher interest rates continue to weigh on important sectors of the economy like housing and manufacturing.
While we’re encouraged by July’s slate of data, we’ll await further confirmation before moving our Economic Dial from its current Negative position.
- Valuation: (Neutral ➖)
Equity valuations remain stretched by the combination of higher stock prices, lower earnings, and rising interest rates. We are monitoring this landscape closely, though for now our Valuation dial remains in its Neutral position.
Overall, our composite Three Dials reading takes a Neutral position, with one dial each in a Positive, Negative and Neutral position.
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