The U.S. equity market closed out July with its best monthly gain since January and thus rebounded powerfully from its June decline. The S&P 500 rose 5% and achieved a new high thereby pushing the YTD return for the broad market index to 19.62%. Smaller companies outperformed the broad market, the S&P MidCap 400 and S&P SmallCap 600 gained 6% and 7%, respectively. Within US asset classes, small growth outperformed small value while large value outperformed large growth.
In the foreign markets, all major asset classes posted positive results with developed markets largely outperforming the emerging markets. The MSCI developed market index (EAFE) returned 5.28%, representing a 4.23% greater return than the MSCI emerging market index.
In the bond market, even though longer term bond yields continued to rise, forcing Barclay’s US Long-Term Gov’t Bond index down by 0.85%, investors interpreted that the Fed’s forecast of a slightly weaker than expected economy would translate into a longer period of bond purchases. The latter pushed most fixed income sector returns into positive territory for July.
As investors sought yield in an environment of low interest rates, US corporate bonds, as measured by Barclay's U.S. Credit Bond Index, posted a positive 0.71% return for July. These returns significantly outperformed the comparable US Gov't benchmark, which returned 0.10%.
Improving political and economic conditions abroad, compared to last year, and a recent retreat in the US dollar relative to the euro and the yen, might explain why non-US government bonds, as measured by Citigroup’s World Ex US Gov’t Bond index returned 1.96% in July, outperforming Barclays’s US Gov’t market bond index by 1.86%.
In other bond sectors, Barclay’s US Corp High Yield Index returned 1.90%. Barclay’s US TIPS Index generated a positive 0.73% return. Barclays’s 3 Year Municipal Bonds Index gained 0.38%. The S&P U.S. Senior Bank Loan index returned 1.05% for July and 3.42% YTD, thus showing low return volatility when compared to other fixed income sectors.
Commodities as measured by the DJ AIG commodity Index gained 1.36%, gold prices stabilized and global real estate securities trended slightly higher.
In sum, July was kind to the disciplined and well diversified passive investor.