July was another positive month for equity markets and a slightly negative month on the fixed income side. The biggest index news came from the Dow Jones Industrial Average, which we rarely mention in our monthly newsletter due to more focus being placed on the S&P 500 to represent the broader equity market. The Dow Jones was positive for 13 straight days, its longest streak of days in positive territory since 1987, and if it had reached 14 days it would’ve been its longest streak since 1897. But surprisingly the Dow wasn’t the best-performing index in July, that distinction went to the MSCI Emerging Markets Index which was positive 6.29% for the month and was buoyed by China, India, and Taiwan. Year-to-date the tech-heavy NASDAQ is still the market leader, positive 37.71%. The US Bloomberg Bond Aggregate was slightly negative for the month, down just 7 basis points as rising interest rates pushed down bond values. Year to date the bond index remains in positive territory with a return of 2.02%.

Energy was the top-performing S&P Sector in July, positive by 7.4%, as the price of a barrel of WTI Crude Oil topped $80. Communications services also both performed well in July and was positive by 6.9%. The worst-performing sector was Healthcare, which was still positive by over 1%, meaning every S&P sector was positive for the month.

The Federal Reserve resumed its hiking cycle this month as the Fed raised rates by another 25 basis points to a target rate of 5.25-5.5%. Rates have not been this high in 22 years as the Fed continues its work to bring inflation down to a target of 2%. Inflation numbers have continued to come down, but CPI still sits at 3% and Core PCE (The Fed’s supposed preferred inflation measure) is at 4.1% in the latest reading. The economy continues to weather 11 rate hikes since the first quarter of 2022 as GDP growth has continued in 2023 and unemployment remains historically low. A big question continues to be “Are more rate hikes on the way or will the Fed allow the current higher restrictive rates to bring down inflation?”

Another Central Bank that made news this month outside of the United States was the Bank of Japan. It announced it would allow the Japanese 10-year government bond yield to rise as high as 1%. For the last 10 years, it had been keeping long-term rates near 0. The Bank of Japan also signaled it would continue to keep short-term rates in negative territory. Japan is currently the only country in the world with negative interest rates. The news that the Bank of Japan will allow longer-term rates to rise may cause some Japanese investors to move money back home to Japan to avoid the currency risk of investing overseas. This was the news that broke the Dow’s impressive 13-day winning streak and it remains to be seen what kind of impact this will have on markets going forward.

As mentioned above, the labor market remains tight, and the unemployment rate remains at historically low levels. One of the drivers of inflation has been the cost of labor as businesses are forced to pay higher wages to attract talent. Part of the Fed’s goal in their hiking cycle was to soften the labor market and it has softened slightly but the Fed’s tools tamp down demand but haven’t helped with the supply side of the labor equation. A slew of job numbers will be reported in the first week of August that will give us a better picture of where the labor market currently stands.

All this being said, the stock market continued its positive run in July, quieting some bear market analysts for now. The long-predicted recession has still failed to materialize and those who pulled their money from the market at the start of the year in anticipation have missed out on the new bull market of 2023. This year shows once again that sticking to an individualized investment portfolio designed for your unique risk tolerance and long-term goals is a major key to long-term investment success.

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