U.S. Stocks Investment Management | Monthly Economic Update July 2016
It is said the stock market climbs a wall of worry. If so, the U.K.’s June referendum to exit the European Union provided perfect hand and toe holds to boost global markets higher. U.S. stocks hit new all-time highs in July, and international stocks posted even greater gains for the month. Moreover, in anticipation of additional monetary stimulus from global central banks, interest rates continued their steady decline. Over $11 trillion of international sovereign debt now carries negative interest rates, and the yields on U.S. government 10-year and 30-year debt plumbed historical lows.
Interestingly, despite telegraphing the intent to ratchet up monetary stimulus, major central banks actually did very little (in the case of Japan), or nothing, during July. Even the Bank of England deferred action pending economic data. That particular delay should be short-lived, however, and investment markets have dialed in a 100% chance of the BOE easing this Thursday.
As the month drew to a close, the initial estimate of second quarter U.S. GDP growth, 1.2% annualized, proved surprisingly tepid against expectations of 2.6%. Government and investment spending were weak, housing, heretofore a bastion of strength, declined for the first time since early 2014, and inventory growth not only slowed, it contracted. For now, investors have taken a “bad is good” stance. After all, bad news suggests a delay in U.S. Fed rate hikes and lower interest rates for longer.
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