Global market turmoil calmed somewhat in July, with a positive compromise in Greece appearing imminent and U.S. markets weathering a 14% tumble in China’s Shanghai index. Commodities remained under pressure largely due to oil futures closing in on their lowest levels for the year. As such, the Bloomberg Commodity Index closed down 11% in July, hitting a 13-year low. U.S. economic data continues to present a mixed picture with consumer spending rising by the smallest amount in four months and consumer confidence tumbling from 99.8 to 90.9 in July which marks the steepest decline since August 2011. Manufacturing activity cooled a bit in July, but remains in expansionary territory. On the positive side, following a 0.6% advance in the first quarter, real GDP grew at a 2.3% annualized rate in the second, buoyed by the third straight month of increasing personal income, healthy employment gains and a robust housing market. Nevertheless, significant economic headwinds persist. In particular, European and Chinese growth concerns have investors questioning the strength of global demand heading into the later half of 2015. Domestically, a strong dollar and anemic wage gains will likely pressure multi-national businesses and consumers alike. The mixed data leads to uncertainty as to when the Fed will begin raising rates. At their last meeting in late July, the Fed cited progress in the U.S. job market but indicated continuing concerns about low inflation.
For the most part, major market averages rose in July after a June pullback. The S&P 500 Index advanced 2.1%, aided by positive news on corporate earnings. About two-thirds of companies in the S&P 500 have now reported, with 74% beating earnings estimates and 50% topping sales estimates. The NASDAQ Composite gained almost 3% in July as big names such as Amazon reported strong second quarter results. Emerging market stocks were negatively affected by Chinese markets, with Chinese shares posting their worst monthly performance since late 2009. Small cap stocks declined for the month, but continue to outpace the S&P 500 YTD, while international developed market stocks continue to post strong performance.
U.S. Treasury prices trended higher throughout the month as flight-to-quality demand and low inflation readings caused the yield on the benchmark 10-year Treasury to shed about 19 basis points and the yield on the 30-year Treasury to drop over 25 basis points. High-yield bonds posted a loss for the month as mixed economic reports have spurred investors to become more sensitive to credit risk. Companies in energy, metals & mining bore the brunt of the decline. Less than $8 billion of new-issue high-yield bonds priced in July, compared to the $20 billion plus monthly volumes seen in the first half of the year. The July FOMC meeting contained no surprises and the Fed Funds rate was again left unchanged.