Monthly Economic Update July 2014

July Summary
Despite favorable domestic economic news and generally positive second quarter earnings reports, investment markets lost ground in July. Increasingly concerned about market valuations and tight credit spreads, investors looking for an excuse to lock in portfolio gains found several across the geopolitical landscape.

  • The U.S. and Europe escalated Russian sanctions following the horrific downing of an airliner overflying Ukraine. Unfortunately, hampering key Russian industries will have negative implications for an already struggling European economy as well.
  • Hundreds have died in Israeli- Palestinian rocket attacks and bloody ground battles. Thus far, various attempts at a cease fire have proven fruitless.
  • The Sunni insurgency in Iraq continues to make headlines and poses added geopolitical uncertainty for OPEC’s second largest oil producer.

If these issues were not enough, the flames of July’s risk-off environment were further fanned by Argentina’s month-end debt default and credit issues in Portugal (now bleeding over to other countries as August gets underway).


July’s Economic Releases


Market Returns
The S&P 500 lost 1.4% for the month and is now up 5.7% for the year. Developed international equity markets, as defined by the MSCI EAFE index, were down 2.0% in July while the MSCI Emerging Markets index rose 1.9%. Year-to-date, international developed and emerging markets have returned 2.7% and 8.2%, respectively.

In the fixed income market, the Barclays U.S. Aggregate index lost 0.3% for the month, and the yield on the 10-year U.S. Treasury note ended little changed at 2.58%. For the year, the Barclays U.S. Aggregate is up 3.7%. High yield credit spreads widened modestly during the month as investors pared back on risk. The Barclays High Yield index lost 1.3% in the process. Despite the worst monthly performance for junk bonds in over a year, the asset class has gained 4.1% in 2014. International bonds were down 1.3% for the month taking year-to-date gains to 4.2%. In other markets, the DJ U.S. Real Estate index was essentially flat in July while commodities lost 5.0%. Year-to-date, the real estate index is up 16.3%, the best performing asset class for the year, and commodities have given back nearly all of their previous gains, up only 1.7%

This commentary was written by Robert W. Lamberti, CFA, Vice President of Investments and a Principal of Summit Financial Resources, Inc. 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, mortgage-backed 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 “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. Securities and Investment Advisory Services offered through Summit Equities, Inc. Member FINRA/SIPC, and Financial Planning Services offered through Summit Equities, Inc.’s affiliate Summit Financial Resources, Inc. 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600, Fax: 973-285-3666.

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