For the month of July and year-to-date, the NASDAQ finished 3.83% for the month and sits +37.06% year-to-date. The S&P 500 was positive 3.21% for the month and 20.65% year-to-date while the Dow gained 3.13% for the month and is positive 6.79% year-to-date.
Just a bit past mid-year Information Technology, Communications Services, and Consumer Discretionary sectors have been the leaders while Energy has been the lagger. However, over the past month Energy has led the markets followed closely by Financials. This is an important positive sign pointing towards continued market momentum. As the market rally was very narrowly defined and driven by technological advances investors became more apprehensive. The latest development, participation from other sectors expanding the breadth of the market rally, is typically a sign the market momentum will continue for a while. The clear winner was the DOW with a 13 consecutive day winning streak ending July 27. That is the longest winning streak for the Dow since 2017.
On Wednesday, July 26th, Fed Chairman Jerome Powell announced one more 25 basis point rate hike. The next day we received data on the personal consumption expenditures price index. This is an inflation metric closely watched by the Federal Reserve. The numbers rose by 4.1% in June, its lowest annual increase in nearly two years, a sign that the Fed is winning the war on inflation.
Typically viewed as the ballast of a portfolio, core bonds have taken a substantial hit over the past year. And yet, for the first time in decades, rising interest rates have empowered bonds to provide a more meaningful source of income. A quick glance at the bond market tells us that the sweet spot in the yield curve is about 12 – 15 months out, meaning that the 1-year yield around 5.35% is higher than the 2-year which is just under 5% and the 10-year which is about 4%. This tells us the bond market expects that once inflation is tamed, the Fed will begin to lower short term interest rates again to kick start the economy. If they are successful, this will be the “soft landing” you hear about on CNBC.
As we end July, JPMorgan strategist Mislav Matejka said in a note to clients on Friday the 28th that 80% of U.S. companies that have reported so far have beaten earnings estimates. However, the strong reports have gotten a largely lukewarm stock reaction, Matejka said.
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