The S&P 500 index continued its strong advance in July, hitting a record closing high in almost half (10 of 22) of the trading days.
From its lowest point on April 8th, the S&P 500 index has advanced 27.7% through the end of July. Following an extremely volatile first five months of the year, daily stock returns have become more muted in the past two months. From January through May, the S&P 500 index moved by 1% or more in 36 of 102 days. However, in the past two months, the S&P 500 index moved by 1% or more in only 3 of 42 days. While equity indices advanced in July, not all stocks followed suit. In fact, 45% of all S&P 500 and 44% of all Russell 1000 were down in July. The market’s return was concentrated in July with 62% of all Russell 1000 stocks underperforming the market index and the S&P 500 monthly return coming solely from six stocks (Nvidia, Microsoft, Amazon, Alphabet, Meta and Apple). Given the resurgence of six of the Magnificent Seven stocks in July, the strength of large-cap growth stocks and the suffering of small-cap stocks are evident both year-to-date and for the most recent 12 months.
International equities took a breather in the month of July from the red-hot performance they returned for the first half of the year. The MSCI AC World ex U.S. (International Developed Equities) were down -0.26% for the month of July, but still up over 18% for the year. Emerging Markets continued their strong relative performance and were up 1.83% for the month of July and up over 17% for the year. Non-U.S. earnings continue to be the biggest headwind for international equities, and the weaker U.S. dollar has been the biggest tailwind aiding international returns.
As stocks continued to advance in July, bonds took a bit of a breather. While the 10-Year Treasury yield traded in a fairly narrow range during the month; it rose from 4.23% at the end of June to 4.36% at the end of July. For the month, the Bloomberg Aggregate Bond index was down almost -0.3%. While the U.S. Aggregate bond index has seen yields fall from 4.91% to start the year to 4.36% as of the end of July, the Municipal bond index has seen yields rise from 3.74% to 4.02%. The largest driver has been bond supply as the Federal government has stepped back state support; in turn, states have gone to the municipal bond market for funding in the first half of the year. The tax equivalent yield is now north of 6% for investors given the absolute yield of 4%. Attractive tax-free income at these levels may not be receiving much attention in the current risk-on market environment, but it could be an attractive option for those investors focused on risk management.
From a macro perspective, the Fed held rates steady at the 4.25% to 4.50% level again at the July meeting. Going into the Fed meeting, the thought was there is no need for rate cuts. The Q2 GDP blew out to the upside at 3%, and initial jobless claims posted another exceptionally low 218k. The jobs report at the end of the month brought the downside risks often cited by the Fed back into the light quickly. While the jobs report came in below estimates, the revisions were the big surprise. Revisions downward for May and June were larger than normal. The May report was revised down by 125k to 19k jobs and the change for June was revised down by 133k to 14k jobs. With these revisions, employment in May and June combined is 258k lower than previously reported. It is hard to say the labor market is solid if the job growth has been anemic. Before the jobs report, the bond market only priced in one cut for the rest of 2025 and the consensus was getting closer to no cuts. Now, the bond market is pricing in three cuts with one at the September, October, and December meetings.
If you have questions about capital markets, please don’t hesitate to reach out to your SDWMA advisor. If you aren’t currently working with us, you can reach out via our website at https://sdwealthmanagement.com/contact-us/.
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