July market review

August 12, 2014

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


  • Global financial markets declined for the month of July, with equities pulling back from intra-month record levels into month-end. Global equity markets posted mixed results across most sectors and regions, with losses across US small cap, and developed European equities only partially offset by gains in Emerging Markets.
  • The S&P 500 returned -1.38% for July, and is up 5.66% year-to-date (YTD). The Russell 2000 Index, which tracks domestic small cap stocks, was down 6.05% for the month, and down 3.06% YTD. The international equity index, MSCI EAFE, was down 1.97% for the month, and is up 2.72% YTD.
  • Emerging markets (MSCI EM) continued its Q2 rally, up 1.93%, and up 8.19% YTD; EM was also the best performing index in July.
  • The Japanese Nikkei 225 was up 3.03% in July, and down -4.12% YTD. This YTD underperformance has been accompanied by a rise in the Yen.
  • Government bond yields were mixed across the curve. In July, the 10-year Treasury yield was up 2bps to 2.55%, from 2.53% in June and the 30-year Treasury yield was down 4bps to 3.32%, from 3.36% in June. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
  • Corporate bond prices increased in July. The Barclays Aggregate Index was down 0.25% for July, and up 3.66% YTD. The Credit Suisse Leveraged Loans Index (bank loans) was down 0.04% for July, and up 2.70% YTD.

Economic & Geopolitical Headlines

  • According to advance estimates from the Bureau of Economic Analysis, the US economy, measured by real gross domestic product (GDP), increased at an annual rate of 4.0% in the second quarter of 2014, after decreasing 2.1% in the first quarter. The first quarter estimate was revised up to a slower decline than originally thought.
  • Geopolitical risks shifted back into focus in July. Iraq is still a concern but faded from the front page as Gaza-Israel escalations and a downed airliner in the Ukraine dominated the headlines.
  • The Fed met in July and is seen to be continuing the taper, reducing another $10bn to $35bn in asset purchases per month, on the announced schedule. The market is debating whether the Fed may raise interest rates sooner than it previously stated, based on the positive economic news of late. Chairwoman Yellen has reiterated numerous times that the Fed has no intention of raising rates earlier than mid-2015 but speculation abides that more positive economic news could result in a raise in rates in 1H15.
  • Expansion in manufacturing in the US continues; the PMI in July registered 57.1, an increase of 1.8 points when compared to June’s reading of 55.3. July’s PMI reading of 57.1 is the highest reading since April 2011 when the PMI registered 58.9. A reading above 50 is considered economic expansion.
  • For six straight months, the US economy has added more than 200,000 jobs, the longest streak since the mid-90s. The Labor Department reported 209,000 net new jobs were created in July, though the unemployment rate edged up slightly to 6.2% as more workers joined the labor force. The report was the latest in a string of upbeat data suggesting the country’s economic recovery is still intact.
  • Both the unemployment rate and the number of unemployed persons (9.7 million) slightly changed in July. Over the year, the unemployment rate and the number of unemployed persons have declined by 1.1 percentage points and 1.7 million, respectively.
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