Monthly Economic Update July 2013
Following a tumultuous May and June, investment markets returned to a more settled state in July. Interest rates stabilized, albeit at higher levels, and domestic equity markets rose to reach new all-time highs. All major asset classes gained for the month with the exception of municipal bonds and long-term U.S. Treasuries.
The relative stability in July was largely a result of the Federal Reserve providing clarification to the process and timing of tapering bond purchases. Apparently, market participants misunderstood and overreacted to initial Fed communications. To dial back on the third round of quantitative easing (i.e. QE3), the Fed will need to see a pickup in inflation, an acceleration in U.S. economic growth, and continued improvement in the labor market. The Fed also acknowledged the rise in mortgage rates and will no doubt be monitoring the progress of the housing market as well.
Fed clarification was helpful and overpowered other geopolitical and economic events in July. That being said, various pressure points did surface during the month. On the home front, first quarter GDP growth was revised lower to a paltry 1.1% and second quarter growth was not much better, only 1.7%. U.S. fiscal gridlock also continued and contributed to Congress receiving an 83% disapproval rating, an all-time high. Lastly, Detroitâ€™s bankruptcy filing became the largest municipal failure in U.S. history. Internationally, Chinaâ€™s growth continued to slow, political turmoil rose in peripheral Europe, and Egypt erupted into violence following a military coup that ousted President Mohamed Morsi.
Julyâ€™s Economic Releases
The S&P 500 gained 5.1% for the month and is now up 19.6% for the year. Developed international equity markets, as defined by the MSCI EAFE index, were up 5.3% in July while the MSCI Emerging Markets index rose 1.0%. Year-to-date, international developed and emerging markets have returned 9.6% and -8.6%, respectively.
In the fixed income market, the Barclays U.S. Aggregate index gained 0.1% for the month, and the yield on the 10-year U.S. Treasury bond changed little to end at 2.60%. For the year, the Barclays U.S. Aggregate is down 2.3%. High yield credit spreads tightened throughout the month, almost completely reversing the widening experienced during the previous two months. The Barclays High Yield index gained 1.9% in July and is up 3.3% so far this year. International bonds gained 2.0% for the month and are now down 4.6% for the year-to-date. Lastly, the Dow Jones UBS Commodity index was up 1.4% in July, and the Dow Jones U.S. Real Estate index gained 0.4% for the month.
This commentary was written by Robert W. Lamberti, CFA who serves as VP of Investments for Summit Financial Resources, Inc. 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600, Fax: 973-285-3666. Source of performance: MorningstarÂ®. 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 & Poorâ€™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, may 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 â€œunsubscribeâ€ 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.