Hello all - we hope you had a nice July.
The month wasn’t a great one for stocks. The Dow was up 0.3%, but the S&P lost 0.1%, and the Nasdaq, which has a higher concentration of tech stocks, fell 3.2%.
The month wasn’t a great one for stocks. The Dow was up 0.3%, but the S&P lost 0.1%, and the Nasdaq, which has a higher concentration of tech stocks, fell 3.2%.
Here’s a look at how the markets moved this month:
Here’s a look at how the various market sectors performed this month.
Stocks were a little more volatile in July.
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TECH STOCKS
Tech stocks were a big story again this month as investors are paying more attention to the costs associated with the buildout of AI.
Big tech names like Google, Microsoft, etc. have seen their stocks sink in recent months due to worries about the massive amounts they are spending on building AI infrastructure. This group of seven big tech companies have been labeled the “Magnificent 7.” Their share prices jumped around a lot this month, but overall, they didn’t end the month far from where they started.
These big tech names have been spending massive amounts of money on things like computer chips. These chip companies are called semiconductors, and their stocks have been on a tear this year because of that.
However, they may have risen too far, too fast, as investors pulled money out of these stocks this month.
However, they may have risen too far, too fast, as investors pulled money out of these stocks this month.
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EARNINGS
Corporate earnings were another big story this month.
The tech sector, as we discussed above, was a mixed bag due to the AI investments.
However, earnings for all companies overall have been very, very good.
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FED
The Fed made headlines this month, too.
The Fed held another policy meeting this month where they announced no changes to their rate policy, as expected.
The drama came after the announcement, though.
The new Fed chief, Kevin Warsh, has a different style than his predecessor. The old style was to be hyper-transparent and discuss their policy projections for the future. But what it did was make investors dependent on the Fed (for example, we’ve written countless times about good economic data coming in and how it was bad for the market because the Fed would pull back on their stimulus). Warsh is trying to break that dependency.
The Fed Chief was pressed on the rising inflation levels and if the Fed planned to raise rates to combat rising inflation (the Fed often raises rates if inflation is high).
Warsh was non-committal on what the Fed would do in the future, stressing that the Fed would not be giving guidance on what they would do – that’s not their job. This is exactly correct. Investors became too dependent on the Fed and the Fed was nearly always wrong on their projections, so it was of little use anyway.
The market revolted on the lack of an outlook, with bonds selling off and their yields rising. This is raising borrowing costs. Here’s a look at the 30-year bond yield, which hit its highest level in over 20 years.
The new Fed chief, Kevin Warsh, has a different style than his predecessor. The old style was to be hyper-transparent and discuss their policy projections for the future. But what it did was make investors dependent on the Fed (for example, we’ve written countless times about good economic data coming in and how it was bad for the market because the Fed would pull back on their stimulus). Warsh is trying to break that dependency.
The Fed Chief was pressed on the rising inflation levels and if the Fed planned to raise rates to combat rising inflation (the Fed often raises rates if inflation is high).
Warsh was non-committal on what the Fed would do in the future, stressing that the Fed would not be giving guidance on what they would do – that’s not their job. This is exactly correct. Investors became too dependent on the Fed and the Fed was nearly always wrong on their projections, so it was of little use anyway.
The market revolted on the lack of an outlook, with bonds selling off and their yields rising. This is raising borrowing costs. Here’s a look at the 30-year bond yield, which hit its highest level in over 20 years.
The markets may have revolted immediately on the exchange, but they reversed course the next day and more than made up the losses.
Keep in mind that all new Fed chiefs face a market revolt in the first few months of their tenure, so the market decline under Warsh is not out of the norm.
Keep in mind that all new Fed chiefs face a market revolt in the first few months of their tenure, so the market decline under Warsh is not out of the norm.
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TARIFFS
Tariffs were back this month, too.
President Trump changed the statutes for filing the tariff claims, avoiding the Supreme Court ruling the had prevented the original tariffs from being applied. This added more volatility to the market as chaotic nature of the tariffs returned.
Here’s an interesting map of the tariff levels we are implementing:
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IRAN
Events in the Middle East were another big player in the direction of the markets this month.
It was another month of “Peace talks on” then “Peace talks off”, with the markets moving strongly on each turn in the war.
The impact was easiest to see in the oil market. Oil rose sharply as the fighting resumed, with gas prices hitting $4 per gallon again.
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INFLATION
Inflation numbers released this month showed a much-welcomed drop in prices.
Unfortunately, these numbers come before the latest escalations with Iran, so we are likely to see the inflation rates rise again on the higher energy prices.
This chart shows gas prices lower in the previous month:
This chart shows gas prices lower in the previous month:
While energy prices were lower, many other prices continue to rise. Food, for example, keeps climbing. Meat prices are at record highs.
Shipping issues are growing as the conflict in the Middle East has tied up a lot of ships. Shipping rates are on the rise, which will mean higher prices for the goods we buy.
When excluding food and energy (what economists call the “core” inflation), prices also showed a nice decline the previous month.
Here’s a look at the inflation level for businesses, which also turned lower.
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OTHER ECONOMIC DATA
Other economic data releases were mixed this month.
Employment continues to be a bright spot.
Both the manufacturing and service parts of our economy took a slight turn lower.
Retail sales showed a slight increase.
Durable goods were only slightly higher, too.
Consumer confidence continues to fall.
Finally, small businesses saw a modest increase in optimism.
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Where does the market go from here?
There is a lot of volatility in the market, with many different factors at play that can impact the market at any time. However, stocks are at a point where the odds are good for a turn higher.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
