Fidelity Bank - Wealth Management
July 2020 Market Review
US Equities continued their rally in July on the back of stronger economic activity as reopenings continued despite flare ups in new COVID-19 cases in the southern and western States. The spike in daily new COVID-19 cases began in mid-June and showed signs of slowing by the end of July. US GDP for the second quarter fell by an annualized rate of 32.9% compared with the previous quarter. While this confirms the enormous impact the lockdowns have had on economic activity and on daily life, investors have been more focused on the recovery in some of the economic data since April. US retail sales have rebounded by 27% to $524 billon since their low in April ($412B) and are just 1% below their peak in January of this year. US stocks gained 5.64% in July while the Bond markets rallied on the back of spread compression with the Bloomberg Barclays Aggregate Bond Index gaining 1.49%.
Through the end of July US Stocks have posted a total return gain of nearly 50% from their March 23rd low. This spectacular market performance has moved the S&P 500 into positive territory for the year (up 2.15%). Much of the rebound in stocks can be attributed to better than expected economic data. Institute of Supply Management PMI surveys, which tracks sentiment among purchasing managers at manufacturing, construction and/or services firms, rebounded from negative levels not seen since the Global Financial Crisis to its second month in a row of expansion levels in July. A PMI reading above 50 indicate expansion, while below 50 indicates contraction. July’s expansion reading of 52.4 is a welcome reprieve after low 40s readings in April and May.
From a Style and Cap perspective, Growth stocks fared better than Value stocks across market cap. Large Cap and Small Cap Growth gained 7.69% and 3.44% respectively, on the back of technology stocks, while Large Cap value gained 3.95% and Small Cap Value gained 2.06%.
All 10 of 11 of the Global Industry Classification (GIC) sectors were positive in July. Communication Services and Consumer Discretionary led the way gaining 7.43% and 7.19%, respectively. Energy was the only laggard, losing 4.91%.
The US Dollar weakened against Developed Market and Emerging Market currencies in July. The Dollar Index, which measures the US Dollar against Developed Market currencies, lost about 4.15%. The MSCI EAFE index lost 1.79% in local currency terms but gained more than 2.33% in US Dollar terms. The MSCI Emerging Market Currency Index gained 1.38% versus the US Dollar in July. The MSCI Emerging Markets Index gained 8.12% in local currency and the conversion to US Dollars caused that gain to become an 8.94% for US investors. Emerging markets have outperformed US equities by nearly 5% since the beginning of May and only trail US equities by 4% on a year-to-date basis.
After ballooning in March, fixed income spread continued to compress in July. With the Federal Reserve’s market operations backing investor confidence, fixed income yields have cratered as investors thirst for yield. Bloomberg Investment Grade Corporate Bond Index rallied 3.25% during July and has gained almost 8.50% year-to-date. High yield Corporates had another positive month gaining 4.89% and have gained more than 10.30% in the last three months.
Treasury prices gained 1.14% in July as rates fell further across the yield curve. 20- and 30-year rates fell by more than 20 bps. Broad Treasuries have gained nearly 10% this year. Treasury Inflation Protected Securities (TIPS) gained 1.12%, as inflation expectations continued to rebound in July. Ten-year inflation expectations bottomed in March as market participant priced in expected inflation of only 0.55%, although the Federal Reserve continues to target a 2.00% inflation goal.
In international Fixed Income, Emerging Markets Debt posted another solid gain of 3.02% in July. Over the last three months, the asset class has gained more than 8.80% and currently yields about 5.5%.
Commodities produced their third consecutive month of strong returns in July. The Bloomberg Commodity Index gained 5.71%. Gold and Industrial Metals led the way for commodity investors. Industrial metals gained 6.96% as producer and manufacturer demand increased. Gold’s spot price jump more than 10.90% in July as prices per ounce approached $2000. From an inflation adjusted price is current dollars, gold is reaching toward record highs but is still a bit shy of the prices of the early 1980s.
Real Estate Investment Trusts (REITs) gained about 3.82% in July as increased economic activity boosted confidence in tenant’s ability to meet rent and mortgage payments increased. Still there is significant uncertainly for retail concentrated REITs as many suspect consumers’ behavior will be significantly altered by the lockdowns. Year-to-date, REITs are down about 10%.
Daniel J. Santaniello, President and CEO, of Fidelity Bank, publishes Financially Fit with Fidelity, your guide to financial well-being, every Thursday. If you’re interested in a financial topic we haven’t yet covered or want to subscribe to our emails, please feel free to drop us a line at blog at fddbank dot com. We would love to hear from you.
July 2020 Market Review is intended solely to report on various investment views held by Fidelity Deposit & Discount Bank and is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting, or investment advice. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. Fidelity Deposit & Discount Bank does not have any obligation to provide revised opinions in the event of changed circumstances. All data is provided by Bloomberg Finance, LP and Morningstar Direct. We believe the information provided here is reliable but should not be assumed to be accurate or complete. Data, if not otherwise noted, is as of 7/31/2020. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Past performance is no guarantee of future results. All investment strategies and investments involve risk of loss and nothing within this report should be construed as a guarantee of any specific outcome or profit. Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large‐cap segment of the U.S. equities market.