Key Points:
- The S&P500 continued its march higher in July, gaining 2.38% and almost 18% for the year.
- Large cap growth stocks have come back into favor over the past few months as investor concerns over delta variant coronavirus spread plagued the news.
Chinese stocks dropped almost 14% in July after the communist government cracked down on technology and education firms.
U.S. stocks edged higher in July with the S&P500 gaining 2.38%, it’s 6th consecutive month of positive returns. Strong corporate earnings this year have pushed the index to an impressive 17.99% through July. Healthcare stocks (+4.9%), real estate (+4.64%) and utilities (+4.33%) were the strongest performers while energy (-8.27%) and financials (-0.44%) had negative returns. Growth stocks came back into favor while value and small caps underperformed the broader market. A rise in delta variant coronavirus cases has created uncertainty as to whether additional lockdowns may be implemented. U.S. GDP growth in the 2nd quarter was strong at 6.5%, but below consensus expectations of 8.4%.
After a decade of low inflation, prices in everything from gas to groceries to houses have gone up this year. The Federal Reserve maintains that these price increases will likely be “transitory” as supply chain disruptions and pent-up demand recede. The U.S. Bureau of Labor Statistics reported that inflation increased 5.4% on a year-over-year basis in June. While it seems counterintuitive, bond yields moved down in July with the 10-year Treasury yield ending the month at 1.24%. The drop in yields may be investor concerns on the economy, profit taking in stocks, but also the Fed maintaining low rates and monthly asset purchases of $120B to provide liquidity the markets. The Barclays US Aggregate Bond Index gained 1.12% in July, it’s best month over the past year. Bond prices move in the opposite direction of yields.
International markets were mixed with developed markets gaining 0.75% while emerging market stocks lost 6.73%. China, which is the biggest weight of emerging markets, dropped 13.84% as the communist party implemented strict regulations on technology companies and forced education and tutoring firms to become non-profit “for the greater good”. While the Chinese economy continues grow and remain integrated within the global economy, the political risk and policy uncertainty associated with investing there is a reminder of the risks involved with investing in emerging markets.
Sources: Morningstar Direct, Wall Street Journal, JPMorgan