The surprising Brexit vote heightened investor anxiety heading into an uncertain July. After recovering from the Brexit losses, the S&P 500 proceeded to post seven records in ten days. Ironically, markets typically find a way to inflict the greatest pain on the largest number of investors. July was no exception. The S&P 500 soared to multiple records highs. From there, fundamental data began to emerge justifying the new stratosphere of equity prices.
Let’s review some of the key market drivers:
· The June U.S. employment report stated 287,000 jobs were created and the unemployment rate remained below five percent. After a dismal May report, this news lifted the market.
· Central banks around the globe are continuing to support accommodative monetary policies and low interest rates. This has and will continue to support global equity prices.
· The Federal Reserve takes another pass on raising the U.S. Fed Funds rate, electing not to upset the apple cart.
· Corporate earnings are beginning to turn the corner. A stable dollar and stable oil prices are helping corporate earnings. Better than forecast results from companies like Microsoft, Morgan Stanley, and Apple are supporting the stock market rally.
· The housing sector may be on a low trajectory, but it is climbing. Housing starts rose 4.8 percent in June. For the second quarter as a whole, housing starts averaged 1.160 million for a 0.8 percent gain from the first quarter.
The U.S. stock market continues to post impressive gains. The S&P 500 gained 3.69 percent for the month, reaching a new all-time high. For the year-to-date period through July, the S&P 500 has increased by 7.66 percent. The small-cap Russell 2000 Index rallied 5.97 percent just this month. These new record levels represent a bullish breakout beyond past resistance levels. Technically, look for the market to continue higher. International equities also had a solid month. The MSCI EAFE and Emerging Market index posted monthly returns of 5.07 and 5.03 percent respectively.
The bond market demonstrated once again that low global interest rates are here to stay. Central bankers around the globe are marching to the same beat by supporting low interest rates to spur domestic economic activity. The central bank action in the United States, Europe, Japan, and China are assisting stock prices while keeping bond yields unattractive. The 10-year government yields in Germany, Switzerland, and Japan are currently below zero in negative territory. It is not a surprise that investors are looking to stocks for returns. The yield on the 10-year U.S. Treasury note traded in a very tight range, starting the month at a 1.49 percent yield and ending the month at a 1.46 percent yield.
With interest rates so low and stock prices at record highs, investing confidently is more of a challenge. Now is the time when you need to lean on a long-term consistent investment approach. Sitting on the sidelines in cash is expensive and being all-in the stock market can be nerve racking. The best answer lies in a balanced approach utilizing cash, bonds, and stocks weighted according to your personal risk tolerance while owning some safe assets to generate steady income if needed. Our strategic portfolios are built to manage risk and to navigate uncertain markets. Stay your course and stay invested; the future may be brighter than the one you imagine.
To expand on these Market Commentaries or to discuss any of our investment portfolios, please do not hesitate to reach out to us at 775-674-2222