Key Takeaways:
- Global stocks performed well in July after a sluggish June
- Job growth remains strong in the US, bolstering the US economy
- Trade tensions eased as the US met with the European Union and Mexico
July proved to be a positive month for risk assets as stocks across the globe performed generally well. The S&P500 gained 3.72%, marking its second-best month of 2018. Year to date, the index is up 6.47% after a choppy first quarter. Large cap stocks outperformed small caps as the Russell 2000 gained 1.74%. Value stocks outperformed growth stocks for only the second time this year, as the Russell 1000 Value index gained 3.96% vs. 2.94% for the Russell 1000 Growth. Strong returns were seen in industrials (+7.32%), health care (+6.61%) and financials (+5.27%), while real estate (+1.08%), energy (+1.42%) and consumer discretionary (+1.83%) lagged the broader market.
Developed international stocks had a strong month with the MSCI EAFE gaining 2.46%. Switzerland (+6.52%), Germany (+4.30%) and France (+3.63%) gained on the backs of trade talk between the US and the European Union. Emerging markets were up 2.2% in July after a selloff of almost 5% in June. Brazil (+11.82%) continues to be volatile while China (-2.49%) digests the tariff impact along with debt issues at home.
Fixed income markets were flat for the month, with the Bloomberg Barclays US Aggregate Bond Index posting a 0.02% gain. Treasury yields rose in July with the 10-year Treasury yield increasing to just under 3% as strong GDP growth in the second quarter caused selling in government bonds. Long corporate bonds (+1.68%) and high yield (+1.09%) were the best sectors of the fixed income market while international treasuries (-0.56%) and inflation protected securities (-0.48%) fared the worst.
Economic activity in the US continues to remain strong as GDP in the second quarter came in a 4.1%. The private sector added 219,000 jobs in July and 213,000 jobs in June bringing unemployment to generational lows. While this bodes well for risk-taking in the near future, it typically results in inflation down the line.
Commentary by: Bill Roth, CFA
Investment Director
Sources: BlackRock, Morningstar, Bloomberg