Hello all - we hope you had a nice July.
This is beginning to sound repetitive - it was another nice month for stocks with very little volatility. The Dow actually saw a decline of 2.2%, but the S&P 500 rose 2.2%, and the Nasdaq, which has a higher concentration of tech stocks, gained 2.4%.
This is beginning to sound repetitive - it was another nice month for stocks with very little volatility. The Dow actually saw a decline of 2.2%, but the S&P 500 rose 2.2%, and the Nasdaq, which has a higher concentration of tech stocks, gained 2.4%.
Here’s a look at how the markets moved this month:
Here’s a look at the performance of the various sectors:
The market is seeing less and less volatility. Here’s the volatility index:
In this chart of the S&P 500, we can see just how little volatility there has been:
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TARIFFS
The tariffs didn’t have much impact on the markets this month. Note that this commentary focuses on the month of July. The tariff announcements on August 1 are consequential, but are not part of this commentary.
There were numerous headlines throughout the month where higher tariffs were imposed. Or lower tariffs were imposed. Or tariffs were postponed. But with all the news, the lack of volatility shows how little impact they had on the markets.
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FED
The Fed held another policy meeting this month where they held rates steady yet again. The lack of a cut was not a surprise for investors.
Many investors seemed to believe the Fed would cut rates at least twice by the end of the year. In his comments, Fed chief Powell poured cold water on any upcoming rate cuts, citing concerns with the tariffs. This took investors by surprise and the market feel on these comments.
Again, this commentary focuses on the month of July. The economic data released on August 1 have increased the odds of a rate cut, but are not part of this commentary.
Again, this commentary focuses on the month of July. The economic data released on August 1 have increased the odds of a rate cut, but are not part of this commentary.
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INFLATION
Inflation data out this month showed inflation may be taking a turn higher.
When we look at inflation on a month-to-month basis, prices continue to rise.
When excluding energy and food from the calculation (which economists call the “core” measurement), inflation rose steadily yet again.
Inflation at the business level continues to bounce around and was essentially flat this month. This inflation level tends to lead the CPI, so hopefully we’ll see inflation slow down (or even move lower).
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OTHER ECONOMIC DATA
Other economic data released this month showed an economy that continues to chug along.
First, and most importantly, was the GDP report for the second quarter which shows the strength of our economy.
All eyes were on this report after the slight decline in the previous report. The results were solid, with the economy growing a healthy 3%.
While 3% was a solid number, under the surface it was a little “funky.” Companies rushed to beat the tariffs by importing a lot of products before tariffs were imposed, which has skewed the recent figures. The most recent report showed a modest gain in exports from the US, and a massive decline in imports.
It may take a couple quarters for these figures to get back to “normal.”
As for a more granular look at the economy, both the manufacturing and service sides of our economy saw modest gains.
As for a more granular look at the economy, both the manufacturing and service sides of our economy saw modest gains.
Retail sales moved higher:
Durable goods (these are items with a longer life, like a phone or refrigerator) also saw a sharp drop. However, when excluding the transportation sector which saw several large plane orders the previous month, durable goods sales were roughly flat.
Consumer confidence moved slightly higher.
However, small business owners were slightly less optimistic.
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CORPORATE EARNINGS
A little more than half of the companies in the S&P 500 have reported their earnings and the results have been pretty decent. The large tech companies, in particular, continue to see strength.
Earnings are on pace to grow over 6% and revenue (sales) stand at about 5%, so companies seem to be doing well.
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Where does the market go from here?
We seem to be at very high levels in the markets here and wouldn’t be surprised to see markets pull back at some point. However, markets continue to chug higher, and there hasn’t been a reason for investors to sell yet.
From a historical perspective, many indicators tell us stocks are expensive. One indicator is the “Buffett Indicator” which looks at the level of stocks compared to the strength of the economy. This indicator has never been higher, which suggests stocks are overvalued.
The “smart money” (institutional investors) and “dumb money” (individual investors) are at opposite extremes, with the “smart money” very pessimistic. This suggests the markets may be too high.
However, companies continue to buy back their own stock at a record pace, which is a strong tailwind for stocks.
So while stocks may be high here, the market remains driven by activities out of Washington and that makes any predictions difficult.
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.
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.
