Monthly Economic Update July 2012

July Summary
The month of July was a stellar example of the old adage that the markets climb the wall of worry. Despite global economic data that was nearly universally poor, all major asset classes delivered gains during the month. U.S. growth has slowed, the labor market is in the doldrums, and manufacturing has contracted for two consecutive months. Corporate profit warnings in July have also taken third quarter S&P 500 earnings growth expectations into negative territory. The Euro zone unemployment rate hit a record of 11.5% in June and the region’s manufacturing activity is in a steep decline. The European debt crisis deteriorated with Greece, yet again, failing to meet the terms of its bailout agreement and Spanish yields spiking mid-month to over 7.5%. Germany and the IMF have lost patience with Greece, and future funding as well as Greece’s membership in the euro zone are highly uncertain. China reported its slowest growth in three years, India recorded its weakest performance since 2004, and Brazil has all but stalled. Clearly, the data set in July was not favorable.

Globally, central bankers were the knights in shining armor in July. Absent their actions throughout the month, investment results might have been more in-line with what one might expect based on the data. The party kicked off July 5th with a European Central Bank interest rate cut to a historic low of 0.75%. That same day, China cut its main interest rate for the second time in a month, and the Bank of England announced another round of quantitative easing. Brazil, planning a consistent string of 0.5% rate cuts in the future, cut days later for a sixth time. Among others, Denmark, South Korea, South Africa, and Taiwan have all cut rates.

The month’s final coup de grâce, however, came on July 26th when Mario Draghi, the president of the ECB, promised the bank is ready to do “whatever it takes to preserve the euro.” Failure of Dr. Draghi and company to walk that talk, which may not even be structurally or politically possible, would have negative implications for investment markets.


July’s Economic Releases


Market Returns
All major asset classes rose in July and are positive for the year. The S&P 500 index gained 1.4% for the month and is now up 11.0% for the year. Developed international equity markets, as defined by the MSCI EAFE index, were up 1.1% in July and the MSCI Emerging Markets index rose 2.0%. Year-to-date, international developed and emerging markets are up 4.1% and 6.0%, respectively.

In the fixed income market, the Barclays US Aggregate index gained 1.4% for the month and the yield on the 10-year U.S. Treasury bond fell 16 basis points to end with a yield of 1.51%. For the year, the Barclays U.S. Aggregate is up 3.8%. Credit spreads tightened modestly during the month with high yield spreads ending at the 15 year average and the Barclays High Yield index gaining 1.9% in the process. High yield bonds have gained 9.3% so far this year. International bonds were up 1.0% for the month and 1.7% for the year.

The Dow Jones UBS Commodity index had strong gains of 6.5% in July, moving the category back into the black for the year after a very tough second quarter. The Dow Jones U.S. Real Estate index rose 2.2% in July.

This market commentary was produced by Summit Financial Resources, Inc., 4 Campus Drive, Parsippany, NJ 07054. Tel: 973-285-3600, Fax: 973-285-3666. Source of performance: Morningstar®. Indices are unmanaged and cannot be invested into directly. The investment and market data contained in this newsletter is not an offer to sell or purchase any security or commodity. Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The MSCI EAFE and Emerging Markets Indexes were created by Morgan Stanley Capital International (MSCI) and designed to measure equity market performance in global developed and emerging markets, respectively. The Barclays Aggregate Bond Index is a market capitalization-weighted index comprised of government securities, mortgagebacked securities, asset-backed securities, corporate securities, and a small number of foreign bonds traded in the U.S. It is used to represent the universe of bonds in the domestic market. REITs, Real Estate Investment Trusts, are securities that invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, however, have liquidity constraints. Past performance does not guarantee future results. Information throughout this Newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding markets or other financial information, are obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. To unsubscribe from this investment newsletter please reply to this email with “unsubscribe” in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision. with “unsubscribe” in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision.

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