The U.S. markets were up again in July with the S&P rising 2.06%, while small stocks continued their relative underperformance of year to date up 0.74%.
Year to date the equity market is continuing the trend of the previous few years of low volatility and positive returns. We have now experienced 17 consecutive months without a normal market correction, which is highly unusual.
The expected bump that small caps got post-election on expected pro-U.S. policy changes has waned, owing to their underperformance versus large caps year to date.
International markets outperformed the U.S. markets with the MSCI EAFE up 2.88%. Emerging markets were up a whopping 5.96%, extending their strong performance.
Earnings have been strong. Seventy-seven percent of reporting S&P 500 firms had beaten estimates in the second quarter. If that is sustained to the end of the season, it will be the highest since the first quarter of 2010.
With an improving global growth backdrop, international earnings should continue to improve which should support rising equity values. Estimates are for the highest GDP growth in six years.
We recently increased our international equity exposure based on improving growth prospects and attractive valuations. Foreign equity returns have begun to decouple from the U.S. markets, providing portfolios added diversification and return.
Emerging market equities have climbed this year, largely driven by an increase in earnings. Valuations have also picked up, although they still do not look especially high.
Oil prices and commodities rose in July, a monthly rebound from lower energy prices and lower inflation. A continued decline in oil prices could put pressure on the equity markets.
Following its meeting in June, the Federal Open Market Committee raised the target range for the federal funds rate by 25 basis points from 1.00% to 1.25%. This is the second rate increase of the three that we expect this year, although the Committee gave no clear indication as to what it may do when it next meets in September.
- This information has been compiled using data and other statements of fact derived from sources which we believe to be accurate and reliable. However, such data and other statements of fact have not been verified by us, and we do not make any representations as to their accuracy or completeness. Any opinion expressed herein reflects our judgment at this date and is subject to change.