Hello all - we hope you had a nice July.
It was another excellent month for stocks. The S&P and Nasdaq have now risen for five months straight, while the Dow has risen for the last four out of five. In July, the Dow rose 3.3%, the S&P 500 gained 3.1%, and the Nasdaq, which has a higher concentration of tech stocks, was higher by 4.0%.
It was another excellent month for stocks. The S&P and Nasdaq have now risen for five months straight, while the Dow has risen for the last four out of five. In July, the Dow rose 3.3%, the S&P 500 gained 3.1%, and the Nasdaq, which has a higher concentration of tech stocks, was higher by 4.0%.
The performance of the Dow was especially noteworthy this month. The index moved higher 13-straight days, which is something that hasn’t happened since 1987!
Here’s a look at how the markets moved this month:
And here is the performance of the various sectors.
A few other indexes are worth mentioning, too.
Commodity prices rose sharply in July. The chart below is a popular index that combines different commodity types like energy, agriculture, and metals. You can see how sharply it rose this month.
Commodity prices rose sharply in July. The chart below is a popular index that combines different commodity types like energy, agriculture, and metals. You can see how sharply it rose this month.
Oil alone had its biggest gain in over a year.
What is the reason for the gain? There’s a lot of different reasons that we won’t go into now, but a new reason this month was the strength of the dollar.
The dollar has been weakening for several months and when the dollar is weaker, commodity prices tend to rise since more dollars are needed to buy the commodity.
The dollar has been weakening for several months and when the dollar is weaker, commodity prices tend to rise since more dollars are needed to buy the commodity.
Higher commodity prices are bound to lead to higher inflation, so this is something to keep an eye on.
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EARNINGS
There were several newsworthy topics affecting stocks this month, but we’ll start with corporate earnings.
Earnings from the second quarter began coming in this month and we’re about halfway through all the companies in the S&P 500.
I’ve heard many times that earnings are better than expected - and many companies have done better. However, analysts originally expected companies to lose about 6%, but right now they are on pace to lose 6%, which is the worst quarter in three years and obviously worse than originally estimated.
Further, this marks the third-straight quarter of lower earnings, which means we are firmly in an earnings recession. The corporate earnings picture is actually pretty poor
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THE FED
The Fed was another big story as they held another policy meeting. As expected, they raised interest rates again to their highest level since 2001.
Normally this would be bad for stocks. However, the Fed seemed to indicate this would be the last increase in rates for the foreseeable future. They also don’t see a recession on the horizon. Investors liked the idea that the worst may be behind us and stocks rose as a result.
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INFLATION
We’ll first look at inflation before getting into the other economic data. As you can see in the chart below, inflation continues to move lower.
However, that is looking at inflation on an annual basis. When you look at inflation month-by-month, inflation is still rising every month It is worth noting, though, that the monthly rise has been slightly lower recently.
Inflation is also steadily rising when we exclude food and energy from the calculation (which economists call the “core” measurement).
Inflation at the business level looks to be turning the corner and is coming down, which is a good sign for us as shoppers.
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ECONOMIC DATA
The data released this month was mostly positive.
We’ll first look at an indicator we’ve discussed a lot recently, which is the leading economic indicator index. It combines many other indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).
This index has been lower for 15-straight months now. It has never gone this low without a recession following.
There are many different indicators that make up that index. Below is a look at the performance of those various indexes.
With all the talk of a recession, the strength of the economy still looks decent. The GDP report for the second quarter continues to show growth.
Digging further into the economy, the manufacturing part of the economy continues to weaken but the service-related side looked decent.
Home prices continue to rise at a pace much faster than wages have grown.
Retail sales continue to rise.
Durable goods (these are items with a longer life, like a phone or refrigerator) were higher again, too.
Consumer confidence made a nice move higher, hitting its best level in two years.
Small business optimism saw a slight gain last month, though it remains very low.
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Where does the market go from here?
Markets are very expensive. However, we said that last month and they kept going higher. Still, we would be hesitant to add new money here. There has been very little volatility thus far, but this time of year is when volatility starts to pick up. We would be cautious at this time.
Markets are very expensive. However, we said that last month and they kept going higher. Still, we would be hesitant to add new money here. There has been very little volatility thus far, but this time of year is when volatility starts to pick up. We would be cautious at this time.
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.
