July Stock Market Review

Paul Tarins, RICP®,WMCP®,CSRIC™

Stocks finished July higher for a sixth consecutive month with the S&P 500 index ('SPY' ETF Proxy) recording a +2.44% gain. However, the breadth of the number of stocks participating in the rally deteriorated, reflected by a -3.6% decline in the broader Russell 2000 index ('IWM'). The dramatic month-to-month performance differences between Growth and Value stocks, and Large-Cap and Small-Cap stocks has certainly been a hallmark of 2021.

Further to the downside were Emerging Market stocks, off -6.4% in July on the emergence of new, virulent Covid strains. It certainly did not help that Chinese state media has been cracking down on its own technology sector corporations. This has left emerging markets nearly flat on the year (Bloomberg, "Emerging Market Stocks Erase 2021's Gains...," 7/26/21).

Despite the variation in stock index performances, it was a good month for bonds across the board as they recovered from their recent downside overshoot in yields. The Barclay's Aggregate Bond index rose +1.1% ('AGG') for the month. Other asset classes also performed well in July, including Global Real Estate ('RWO') and Commodities ('DBC'), up +4.6% and +1.3%, respectively. As a result, it was an especially good month for diversified investors.

While it is difficult to fathom even in retrospect, since last year's -35% pandemic-induced market crash, US Large-caps have subsequently risen nearly 100% off their lows. This has not been just any run-of-the-mill recovery; fiscal and monetary stimulus not seen since World War II has driven corporate earnings well above pre-pandemic levels, even as many economic measures have yet to fully recover. In particular, lagging unemployment has the Federal Reserve remaining patient in raising interest rates back to normal levels, even in the face of rising inflation.

The initial read of second quarter Real Gross Domestic Product growth came in at +6.5% (US Bureau of Economic Analysis, 7/29/21), slightly lower than anticipated. Uncertainty about the nature and level of growth going forward and how persistent price increases will be shall likely continue to drive market multipliers and price action in the months ahead. This could be especially true as markets head into the dog days of summer facing the historically difficult months of August and September after such a sustained string of gains. Of course, we will continue to monitor markets closely, meanwhile enjoy the summer.

Source: Index proxies based on ETF time-series data from CSI Data, Inc. Data deemed reliable, but not guaranteed. Past performance is no guarantee of future performance or 

Paul Tarins is an investment adviser representative of and offers investment and advisory services through Portfolio Medics, a registered investment adviser. Nothing contained herein should be construed as a solicitation for investment advisory services. Sovereign Retirement Solutions and Portfolio Medics are not affiliated.