Stocks had a good month in July, while longer term bonds saw price declines. July was the fifth consecutive month of positive returns for the S&P 500 index as equity markets have continued to rebound from 2022’s drawdown. Corporate earnings and most macroeconomic measures of growth have remained healthy, even as the Fed hiked rates another 0.25% on July 27. Inflation has been steadily dropping and it looks like the Fed’s efforts to stamp out inflation with higher interest rates is working, without bringing on a recession as many economists predicted, resulting in what market experts have dubbed a “soft landing”.
Mid Cap and Small Cap stocks outperformed larger stocks in June and July, indicating that the market recovery has broadened out from just the largest technology related firms. International stock returns, measured by the MSCI EAFE index matched the S&P 500 in July at +3.2%, but that top-line number obfuscates an eventful month where returns for some countries trailed the US by a few percent but US investors benefited from strengthening non-Dollar currencies that brought their realized investment returns back up.
In fixed income markets, the yield curve became slightly less inverted. Long Term and Intermediate Term Bonds suffered price declines as their yields rose. High Yield and Short Term Bonds continued to pay attractive coupon payments and provided positive returns. As inflation has dropped, investors who used them should remember to check up on their Treasury Direct I Bond accounts. While these instruments were providing very attractive returns over the last couple years, they periodically reset their Current Interest Rate and are back down at levels where some investors may choose to redeploy their capital into higher returning investments.
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