Taken as a whole, July was a modestly positive month for global markets. In the US, both large and small company stocks rose. Outside the US both developed international and emerging markets fell. Bond markets were up modestly, returns were coupon driven as interest rates along the yield curve did not move significantly higher or lower.
The economy is still thought to be growing and the expansion hit a milestone in July, when it became the longest in US history (click here to read our take). Generally speaking, the economic data was constructive as preliminary GDP came in above expectations, the labor economy continued to be strong, and inflation remained in check.
As we write this, it is about three quarters of the way through earnings season for S&P 500 companies. Estimates have been generally falling throughout the year. This is common however, as most years both companies and analysts start off overly optimistic and revise their assumptions for growth and margins as the year progresses. Companies are fairly good at managing expectations to register “beats”, but so far a little over half of companies have missed estimates. It is worth noting that earnings growth is still expected for the back half of the year and the overall environment appears relatively stable. In addition, the prospect of lower rates seems supportive of valuations for the time being.
The Fed made news at the end of the month, as it cut interest rates 0.25%. You can click here to read our take on what the Fed is doing, we won’t repeat it here. The cut was widely expected, and a few investment banks were calling for the Fed to be even more aggressive by cutting 0.50%. The Fed was not as aggressive as some had hoped, and in his press conference Chair Powell seemed non-committal about future cuts which disappointed some market participants and, in our opinion, has led to some recent weakness. So far, the Powell Fed has seemed to take ques from the market. We’ll see if that continues should weakness persist; markets are betting on it as Fed Funds futures are now pricing in two more Fed moves this year.