July market review

August 14, 2013

Shortly after the end of each month, our CIO provides highlights of the market and our funds’ performance. Following is a summarized review of July  — 


  • US equity indices were up in July, continuing the very strong 2013 first half performance. The S&P 500 was up 5.09% for the month, and up 19.62% YTD. The Russell 2000 performed even better, up 7.00% for July and up 23.97% YTD.
  • The Developed International equity index, MSCI EAFE, outperformed the S&P in July, up 5.28%, and is up 9.60% YTD, still underperforming the S&P 500 by 10.02% for the year. 1H13 underperformance was due to the strong equity performance in the US driven by Federal Reserve fiscal support and improving economic numbers while Europe was seen to be “muddling through”.
  • Emerging markets were up 1.04% for July but still down -8.62% YTD.
  • Japan took a rest in July; the Nikkei 225 was down slightly, -0.07%, for the month, but up 31.49% YTD. This performance has been driven by the Bank of Japan; through the end of July, the Yen was down well over 11% but the Yen strengthened about 1% in July.
  • The 10-year and 30-year Treasuries had increases in yields in July. The 10-year up was 9bps to finish July at 2.58% and 30-year up 14bps to 3.64%. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
  • Corporate bonds were up in the month of July but still down YTD. The Barclays Aggregate Index was up 0.14% for July and down -2.3% YTD. The Credit Suisse Leveraged Loans Index (bank loans) continued its solid performance from 1H13 and was up 1.1 % for July, and 3.9% YTD through July 2013.
  • Volatility in domestic equity markets has remained muted; currently the most common measure of volatility in the US markets, the VIX, remains at all-time lows. However, there was a brief increase in volatility in late May when it seemed that the Federal Reserve was going to end its monetary stimulus.

Economic & Geopolitical Headlines

  • The second half of 2013 saw a pick-up in ISM PMI; this is a proxy for manufacturing, and therefore economic health. In the US, July’s number was 55.4 versus 50.9 in June. A reading above 50 is considered economic expansion.
  • Unemployment ticked down in July to 7.4% in July. However, this improvement was mitigated by the large growth in part-time jobs compared to growth in full-time jobs.
  • Chairman Bernanke made sure to keep on message that rates will stay low and bond buying is not seen to be slowing in the near future. Speculation has also begun over who will replace Bernanke as Fed Chair with Janet Yellen and Larry Summers as the two front runners.
  • Many market participants are watching the unemployment rate closely as the closer the rate gets to the Fed’s stated healthy level (somewhere around 6.5% depending on other indicators), the more likely it is that fiscal stimulus will be slowed. The market seems to think that the Fed will start to slow its fiscal stimulus some time during 2H13.
  • The new leadership in Japan won a victory in Japan’s pivotal July elections. Prime Minister Abe’s LDP party had a strong performance in the Upper House election. Now it is up to Abe and his party to institute the structural reforms needed to continue the positive effects that their fiscal policies started.
  • Domestic growth, as measured by GDP growth, was 1.7% for the second quarter of 2013. This number, while weak in a historical context, was stronger than what was expected and a small positive. In June, the housing market in the US continued to show signs of stability and slow improvement with new home sales up 8.3%; however, existing sales, housing starts, and housing permits all fell 1.2%, 9.9% and 7.5% respectively.
  • Europe has entered its summer vacation period in August and, ahead of that, was fairly quiet in July. There are still rumblings in periphery countries — Portugal, Greece and Cyprus — but in July, headlines concerning the continent were dominated by the potential US spying and Snowden controversies — not economic problems.
  • Emerging markets may have found a bottom in regards to expectations of growth versus actual growth. EM markets have slowed considerably and there are growth concerns throughout; however, investors’ expectations have been considerably lowered. Too much, or too large, disappointments in China data, or continued unrest and inflation in other EM countries could spur further losses however.
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