Monthly Economic Update July 2018: U.S. Stocks Surged While International Stocks Pared Back Earlier Losses
Global equity markets had a strong month as U.S. stocks surged and international stocks pared back earlier losses. Large cap value stocks outperformed, overtaking technology and small cap companies which had led the market in recent months. U.S. companies are repurchasing their own stocks at record levels, providing a boost to stock prices. Although most companies delivered healthy earnings in the second quarter, a handful of widely held technology and auto firms struggled. The U.S. stock market is expensive based on an array of valuation measures. Investors should be cautious about their expectations for long-term price gains. U.S. interest rates rose with the largest increases at the long end of the yield curve. As a result, Treasury and government bonds declined. Credit-sensitive bonds posted positive returns and municipal bonds did well relative to taxable securities. After a modest upward shift, high yield bond default rates have stabilized. In commodities, gains in agriculture were offset by declining prices in the energy and metals sectors.
Although the U.S. economy accelerated in the second quarter, housing and auto sales appear to be weakening. Supply shortages, rising prices and a slowdown in exports are headwinds for manufacturing. The Federal Reserve left rates unchanged but forecasted additional hikes by year-end. Fears of a global trade war with the U.S. at the center intensified following threats of retaliatory tariffs from China and contentious negotiations with the European Union. The U.K. appears to be heading towards a chaotic exit from the E.U. The sharp increase in corporate debt is also a concern and a credit event could trigger a bear market in stocks and credit-sensitive bonds.
Disclaimers:Â Source for economic data: Bloomberg. Source for market returns: MorningstarÂ®. This commentary was written by Daniel Cohen, Senior Investment Analyst and Noreen Johnston, CFA, Director of Research and at Summit Equities, Inc. and Summit Financial Resources, Inc. Indices are unmanaged and cannot be invested into directly. The investment and market data in this newsletter is not an offer to sell or purchase any security or commodity. Past performance does not guarantee future results. The Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index comprising Treasury securities, Government agency bonds, mortgage backed bonds, corporate bonds, and some foreign bonds traded in the U.S. The Bloomberg Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The Bloomberg Barclays Global Aggregate Ex U.S. Index measures the performance of global investment grade fixed-rate debt markets that excludes USD-dominated securities. The Bloomberg Commodity Index measures the performance of the commodity sector representing an unleveraged, long-only investment in commodity futures that is broadly diversified, and primarily liquidity weighted. The Dow Jones U.S. Real Estate Index measures the performance of the real estate sector of the U.S. equity market. It includes companies in the following industries: real estate holding and development and Real Estate Investment Trusts. The Wilshire 5000 Total Market Index measures the performance of all U.S. headquartered equities with readily available price data. It is market capitalization-weighted and is designed to track the overall performance of the U.S. stock market. The S&P 500 Index is a market capitalization-weighted Index of 500 widely held stocks often used as a proxy for the stock market. It measures the movement of the largest issues. Standard and Poor’s chooses the member companies for the 500 based on market size, liquidity, and industry group representation. Included are the stocks of industrial, financial, utility, and transportation companies. The Russell 2000 Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. Â Information throughout this Newsletter or any other statement(s) 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. Opinions expressed are subject to change without notice and are not intended to be investment advice or a guarantee of future performance.Â 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.â€™s affiliate Summit Financial Resources, Inc. 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600, Fax: 973-285-3666. 20180813-744