2019 Market Rally Keeps Rollin’ in July
The U.S. investment markets had a solid start to the third quarter with all three major stock indices posting gains in July. The Dow Jones Industrial Average rose 1.12%, the Standard & Poors 500 gained 1.44% and the tech-heavy NASDAQ added 2.15%.
This positive performance was supported by better-than-expected earnings results. According to Bloomberg Intelligence, companies in the S&P 500 have been outperforming analyst estimates for the second quarter. As of July 31, with 60% of companies reporting, year-over-year earnings growth came in at 0.8% for the quarter. This result is much stronger than the 2.2% decline that was forecast at the start of earnings season in mid-July.
International stocks did not participate in the gains of July. The MSCI EAFE (Europe, Australasia and the Far East) Index declined 1.27%. Here, concerns surrounding a slowdown in global growth worried investors. Technicals for both developed and emerging markets remained positive, and is gaining our attention. July marked the second straight month that both indices finished the month above their respective 200-day moving averages.
Bonds also had a solid month. The Bloomberg Barclays U.S. Aggregate Bond Index gained 0.22% in July. Interest rates declined on the short and long ends of the yield curve during the month, driving this appreciation. On July 31, the Federal Open Market Committee (the “Fed”) cut interest rates by ¼%, or 25 basis points, as widely expected, and for the first time in more than a decade. Odds are that the Fed will cut rates again at their September 17/18 meeting.
In general, the economic data released in July came in better than expected. It showed growth picking up in key areas of the economy. Strong consumer spending in the second quarter led to economic growth that was above analyst expectations. Second quarter GDP came in at 2.1%, well above consensus estimates of 1.8%, and helping to calm fears of a slowdown in economic growth.
August began with renewed market volatility that we have not seen since last May, primarily over a new wave of tariffs and slowed trade negotiations with China.