July 2024 - Market Summary
Key Takeaways:
- Most stock indices were positive in July thanks to a positive first couple of weeks. Small cap stocks were the big winner up 10% on the month.
- The "Magnificent 7" large-cap US stocks sold off mid-way through the month with investors rotating into value and small-cap stocks that have lagged for the last year
- Bonds benefitted from the market volatility as interest rates came down pushing prices higher.
- Inflation continues to move towards the Federal Reserves 2% target with the economy only slowing gradually.
Equities:
Equities experienced some turbulence in the second half of July, but most indices finished higher thanks to a solid first half. In July, investors rotated away from the mega-cap tech companies that have become known as the "Magnificent 7" and into some of the more unloved areas of the stock market universe. The Dow Jones Industrial Average rose 4.5% h, the S&P 500 advanced 1.2%, and the tech-heavy NASDAQ slipped 0.7% in the month. Small-cap stocks were the shining star, the Russell 2000 index surged 10.2%.
Only one of the 11 sectors finished July in the red: technology, which fell 3.3%. Value stocks performed well in July as investors rotated out of growth and tech names. Both small and large-cap value equity styles performed better than their growth counterparts. The top three sectors in July were value-oriented sectors: Real Estate, Utilities, and Financials, which posted respective gains of 7.2%, 6.8%, and 6.4%.
On the international front, the developed international stock index (MSCI EAFE) was up 2.9%, led by returns in Japan. The emerging market index was slightly positive (+.4%).
Fixed Income:
Treasury yields continued to fall with the middle of the curve posting the largest MoM declines. The front end of the curve saw the biggest declines as investors began to price in a higher likelihood the Fed cuts rates in September and then twice more before the end of the year. As a reminder, the Federal Reserve most directly influences short-term interest rates while longer term rates ("further out on the yield curve") are more impacted by economic confidence, government balance sheets, etc.. Lower yields (interest rates) boost bond prices, therefore bond funds benefitted in July, the Bloomberg US Aggregate Bond Index was +2.34%.
Economy:
Inflation fell below 3% for the first time since June 2023, breaking through the 3-4% range it has been hovering in for the last twelve months. Unemployment rose for the third straight month, though labor force participation rose and job growth continued to remain relatively stable even in a high interest rate environment. There was some weakness in the housing market, both new and existing home sales fell again in July as the U.S. median existing home sales price set another all-time high.
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