July Markets End on a High Note

Welcome to our July Newsletter!

July was yet another month of roller coaster ups and downs, marked by continued consumer concerns about supply chain issues and higher costs for goods and services. The weather wreaked havoc in many parts of the country, as torrential rains and record flooding devastated Kentucky, leaving more than two dozen dead. Folks in St. Louis dealt with flash floods from more than nine inches of rain in 24 hours (shattering a century-old mark of 7.02 inches). Californians could have used some of that rain -- they continue to battle the largest wildfires they’ve seen this year.

Data released in late July indicated more trouble in the housing market. The latest monthly homebuilder sentiment survey showed the single largest monthly drop in its 37-year history (except for April 2020). Housing starts declined for the second month, falling 2.0% and surprising economists who had expected an increase.

But the month brought plenty of good news, too. Corporations told a more upbeat, optimistic story about business conditions, with many companies reporting solid second-quarter earnings in July. Through July 22, FactSet reported that 68% of S&P 500 companies reported positive earnings surprises, and 65% reported a positive revenue surprise.

Another optimistic tidbit is that the U.S. dollar and the euro reached parity for the first time in almost 20 years. The dollar strengthened against the euro partly because of differences in monetary policy. The U.S. has been raising rates to slow inflation, while the European Central Bank (ECB) has been hesitant to do so, for fear of slowing economic growth. In late July, however, the ECB raised short-term rates for the first time in over a decade, so euro/dollar parity may be short-lived.

Maybe the best news of all? Undaunted by another Federal Reserve rate hike and news of a contracting economy, the stock market rallied in late July on better-than-expected corporate earnings. The Dow Jones Industrial Average increased 2.97%, while the Standard & Poor’s 500 picked up 4.26%. The Nasdaq Composite index gained 4.70% for the week. Fed Chair Jerome Powell indicated that it might become appropriate to slow the pace of future rate hikes, and he did not believe the economy was entering into recession.

And, despite news of the second consecutive quarter of negative economic growth (meeting the technical definition of a recession), stocks added gains as fresh earnings continued to comfort, if not impress, investors. Unlike past recessions, hiring has been strong all year, with the unemployment rate near historic lows. The economic slowdown was attributable primarily to decreases in inventories, a deceleration in the housing market, and lower government spending. Consumer spending increased a tepid one percent, well below the inflation rate during the same period.

With half the year behind us, here are a few tips to help make the rest of the year as smooth as possible:

• Deflate Inflation - Travel-related costs have skyrocketed, causing many to delay or cancel vacation plans. But are you overreacting to current headlines? Let's talk if you're wavering on a scheduled trip.
• Embrace Uncertainty - If you’ve delayed a major purchase lately, you're not alone. Economic uncertainty has caused many of us to rethink our expenditures. When your net worth declines, the "wealth effect" tells consumers to rein in spending. But our portfolio strategy takes into account periods of market volatility.
• Practice Patience - The need to take action can push even the most seasoned investors into questionable territory. Instead, try to take a long view of the markets. Remaining patient and taking a break from market watching may help you weather the storm.

Let us know if you ever want to chat about your future goals or current economic conditions. We're always ready to help.

Stocks

Equity markets rebounded in a strong way to start the second half of the year. July turned out to be the best month for equities since November 2020. The rally was fueled by better-than-expected financial results from some of America’s biggest companies, along with bets that the Federal Reserve would curb its policy of constraining the economy sooner than expected.

Sector Performance

For the month of July, the consumer discretionary sector was the best-performing segment of the S&P 500, rallying 19%, although it still ranks next-to-last in year-to-date performance. Earlier in the year, the consumer discretionary sector was particularly hurt by supply distortions (which were exacerbated by China's ongoing zero-COVID policy and the war in Ukraine). Similarly, we saw heavy selling pressure as the Federal Reserve continued to raise rates in an attempt to curb inflation. However, some of those supply chain fears subsided in July, as the Fed hinted at a slower pace for interest rate hikes. These are all positive developments for consumer discretionary sectors, especially as many companies within the sector continue to report earnings above estimates.

Bonds

As expected, in late July the Federal Reserve raised rates by 75 basis points (0.75%), bringing the benchmark fed funds rate to about 2.5%. After the Fed meeting, there was a sizable move downward in Treasury bond yields, likely reflecting the market view that inflation and growth may be slowing, and the Fed may move more gradually in the future. We watched the two-year yield move lower by about 50 basis points and the 10-year yield by 75 basis points since their mid-June highs. As a result, bonds posted positive monthly numbers -- a trend that has been hard to come by this year.

Economic Update

For now, we continue to see some weaker economic data coming in. The Conference Board Consumer Confidence Index^® for July slipped to 95.7, down from June's revised reading of 98.4 points. It's the lowest index reading since February 2021, when levels were 95.2, and the third consecutive month that the index fell. Similarly, gross domestic product (GDP) fell -0.9% at an annualized pace for the second quarter, following a -1.6% decline in the first quarter. Keep in mind that two quarters of negative GDP growth is considered a recession; however, this data doesn’t seem to be spooking investors as markets rallied solidly to start the second half of the year. Investors may be getting over their fears around inflation and Fed rate hikes. Couple this with improving economic data in the months ahead, and we could see this rally sustained.

78-Year-Old Iron Woman is Powerlifting Champion

Just in case you didn’t already feel guilty about not being in your best shape, here’s a little something to get you motivated: meet Nora Langdon, a world champion power lifter at 78-years-young! She holds 19 world records, and even more incredibly, started liftingat age 65.

At that point in her life, Nora was too out of shape to walk up the stairs in the houses she was selling (she had a 35-year career in real estate). While attending a birthday party, she was introduced to trainer Art Little, who worked at a local gym. She went to one of his powerlifting meets and was intrigued.

When she asked Little if she could eventually do the same, he was hesitant but started her off with the basics. The rest, as they say, is history. Since then, she has competed in 25 sanctioned meets and won 23 of them. Read more about Nora’s amazing story and watch a snippet from a mini-documentary about her.

THOUGHT FOR THE MONTH

^{Index Definitions}

^{Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.}

^{Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.}

^{NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.} 

^{S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.}

^{S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.}

^{S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.}

^{S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.}

^{S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.}

^{S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.}

^{S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.}

^{S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.}

^{S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.}

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