The markets in July continued the positive performance momentum and broadened out from the Technology sector. META (+11.02%) continued its price surge as did Nvidia (+10.46%) and Alphabet (+10.04%)…Amazon, Apple, and Tesla finished slightly positive…Microsoft (-1.36%) gave back some of its gains, and Netflix finished essentially flat for the month. Energy finished +6.76% for the month, Financials gained +4.5%, Materials +3.59% and Industrials +3.08%.
S&P 500: Jul +3.12% YTD +19.52%
DOW: Jul +3.35% YTD +7.28%
NASDAQ: Jul +4.05% YTD +37.07%
Russell 2000: Jul +5.63% YTD +13.42%
YTD Sector Performance:
Communication Services +44.75%
Consumer Discretionary +35.5%
Consumer Staples +1.9%
Energy -0.5%
Financials +3.0%
Healthcare -1.5%
Industrials +12.3%
Materials +10.2%
Real Estate +3.1%
Technology +45.8%
Utilities -5.0%
U.S. Treasury Yields:
6 Month Bill 5.46%
2 Year Note 4.88%
5 Year Note 4.25%
10 Year Note 4.06%
30 Year Note 4.15%
The Economy and the Fed:
Core inflation came in at 4.8%, still above the Fed’s 2% target, and remains sticky. The consumer continues to be resilient as does the labor market. The June Jobs Report reflected a slowdown in hiring. The unemployment rate came in at 3.6% compared with 3.7% in May. Wages continue to rise. The PCE (Personal Consumption Expenditures) price index rose 3.8% (seasonally adjusted) in May, well down from the July 2022 high of 7%. Housing inventory continues to be tight with home prices up 2.6% year-over-year. As well, inventory is down 17% since July 2022, exacerbating the problem. 30-year mortgage rates finished the month at 7%+.
Powell raised the Fed Funds Rate another quarter point (between 5.25%-5.5%), and at 5.08%, it is at a 22 year high. The Fed Funds raise, coupled with some economic cooling, is encouraging. We believe that the Fed will raise rates at least one more time before year-end. Some pundits think they could raise 2-3 times before the year is out. Powell continues to be data driven.
The IMF (International Monetary Fund) raised its growth outlook for the U.S. with a forecast of 1.8% in 2023, up from 1.6%. China remained the same at 5.2% in 2023 but noted that China’s recovery is underperforming. Growth for Japan, UK, and Euro zone countries were all also raised, while Germany was cut.
Looking Ahead:
The market is pricey, and a pullback of some magnitude is in order. 80% of reported corporate earnings have been above EPS (earnings per share) estimates. 64% of reported companies have beat on revenues. Six of the eleven sectors are reporting year-over-year earnings growth. Consumer Discretionary and Communication Services are at the top. Energy, Materials, and Healthcare led the five sectors reporting a year-over-year decline in earnings.
Money market funds continued to add cash for July and have now harvested $3.17 trillion. For our portfolios, we are keeping cash on hand as a market buffer and for income. Yields are at roughly 5%. There will be trading volatility, reducing froth, and allowing for PEs (price-to-earnings multiples) to adjust. The market is adapting to the recent runup. The FOMO (Fear of Missing Out) trading is beginning to quiet. We’re optimistic that the markets will continue with gains into year-end. Patience and positioning will prove rewarding. | 