PMC Weekly Review - July 31, 2015
A Macro View - July Monthly Recap
Domestic equity markets rebounded quite nicely in July from the severe losses suffered in June. The S&P 500 posted its best monthly performance since February. Several factors were the primary drivers of the strong gains, including an uptick in domestic economic data; a resolution to the Greek bailout brinksmanship of prior months; economic data in China that was a bit more upbeat than anticipated; and solid earnings news both domestically and in Europe. Domestic economic data proved resilient during the month, with the first estimate of second quarter real gross domestic product (GDP) coming in at 2.3%, a bit below expectations, but ahead of the first quarter’s rate of 0.6%.
Within this context, stocks generated robust returns for the month. The S&P 500 gained about +2.5% for the month. The Dow Jones Industrials (DJIA), while positive, lagged the S&P 500 with a gain of about +0.8% for the month. The tech-heavy Nasdaq Composite Index rebounded nicely from its steep losses in June, advancing about +2.4% in July. The Russell 2000 Index of small cap stocks underperformed the Russell 1000 Index of large cap stocks, and growth stocks handily outperformed value stocks during the month. In terms of sector performance, the top performers in the month were, consumer staples, utilities and consumer discretionary. Energy and materials were the poorest performers, posting negative returns for the month. REITs bounced back from the significant losses of the prior two months, generating a return of more than +5.0%.
International equity markets did not fare quite as well as domestic markets during July, despite the resolution to the situation in Greece. In Europe, however, economies continue on the mend, and earnings are beginning to show signs of life. European markets posted their best performance since February, driven by positive earnings announcements and an increase in merger activity. The MSCI World ex-U.S. Index booked a slight gain of about +0.5% for the month. Emerging markets suffered again as commodity prices slumped. The MSCI Emerging Markets Index fell by about -7.7% for the month, but the MSCI EAFE Index, which measures developed markets performance, managed to eke out a slight gain of about +1.0%. Regionally, China saw its stock market bubble burst, with prices declining more than -11% during the month. Latin America also performed poorly, posting a decline of about -10.3%.
Fixed-income markets were mixed during July, as most market participants continued to position portfolios ahead of likely Federal Reserve action on interest rates in September. Treasury yield climbed to about 2.40% during the middle of the month, but then meandered back down to about 2.20% at the end of the month as economic data was not quite as robust as had been expected. However, analysts continue to believe that the U.S. economy is recovering well enough that the Fed will likely begin to raise interest rates in September, and perhaps once more by the end of the year. Within this environment, the 10-year U.S. Treasury yield ended the month at about 2.20%, down 14 basis points from the 2.34% level of June 30th. Broad-based fixed-income indices were higher in July, with the Barclays U.S. Aggregate Bond Index advancing about +0.4% for the month. Global fixed-income markets, however, performed poorly as the Barclays Global Aggregate ex-U.S. Index declined by about -1.0%. High yield indices were generally lower for the month, but short-term issues posted modest gains. Municipals also generated solid performance during July.
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