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July Jump: Global Equity Markets Post Positive Returns in July Despite Continued Trade Tensions

Summary

  • U.S. equities saw robust returns in the month of July. Strong consumer spending supported a 4.1% annualized growth in gross domestic product (GDP), the largest quarterly increase since 2014.  U.S. manufacturing growth remains solid, even though foreign demand has fallen slightly.  The unemployment rate ticked higher (increased by 0.2% in June) and though wages continued to rise (up 2.7% over the year).  While consumer confidence increased in July, the percentage of consumers expecting business conditions to worsen over the next six months rose.
  • International and emerging market equities both posted modest returns for the month of July. On a year-to-date basis, international equities are flat while emerging market equities remain in negative territory.  International trade concerns were dampened as the possibility of a trade war between Europe and the U.S. diminished.  Eurozone manufacturing remained in expansion, but the increase in July was the weakest since November 2016.  Export sales in China fell for the fourth month in a row as newly enforced tariffs caused a decrease in foreign demand and the government continuing to focus on shifting to more domestic consumption.
  • Fixed income investments ended the month flat for investment grade bonds and up slightly for municipal and high yield bonds. The 10-year Treasury note yield inched closer to 3% as investors seek out riskier assets due to strong economic data.  The demand for municipals and high yield bonds increased, created by a shortage of new issuance.  A lack of supply in the high yield market comes as fewer lower-rated companies are borrowing.

U.S. Equities

  • Broad U.S. stocks increased meaningfully in July (up 3.3%) and on a year-to-date basis (up 6.6%).
  • Size – Large-cap stocks (up 3.5%) outperformed mid-cap (up 2.5%) and small-cap stocks (up 1.7%) during the month, however, small-caps are leading on a year-to-date basis (up 9.5% vs. large caps up 6.4%).
  • Style – Value stocks (up 3.8%) reversed the recent trend and outpaced growth stocks (up 2.8%) in July but continue to significantly underperform on a one-year basis (up 9.9% versus 22.9%, respectively).

S&P 500 Sector Returns for July 2018:

Looking Ahead

  • The fundamental health of the economy remains strong despite headlines of tariffs and trade wars. Volatility in equity markets will likely continue as trade deals are renegotiated.
  • Successful long-term investors focus on their ultimate objectives and we believe this is achieved by investing in a globally diversified portfolio of stocks and bonds.
Sources: Morningstar, Inc., Barclays Capital, Russell and MSCI, U.S. Bureau of Labor Statistics, The Conference Board, IHS Markit, The Federal Reserve (central bank of United States), The Bureau of Economic Analysis (U.S. Department of Commerce) & U.S. Department of Treasury

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