July 2024 Index Returns

In stocks (equities):

• On July 1, did you know of anyone who predicted the R2000V (+12.2%) would outperform the R1000G (-1.7%) by almost 14% for the month? In fact, the R1000G was the worst performing stock index in July and it was the only stock index in the red for the month. What caused this dramatic turnaround? Was it simply investors thinking the tech trade was too crowded or too expensive? Could it be tech companies are being seen as spending too much in the AI arms race, which will negatively impact future earnings? Was it investors taking profits in large cap growth? Was it investors thinking small cap stocks could do better in a lower rate environment? Frankly, it could be a bit of all of these things, but we would caution against trying to assign the dramatic turnaround to any particular factor(s). This turnaround also highlights why we believe in diversification as asset class performance can change quickly and dramatically. Dimensional Fund Advisors also provided the following stats which I found interesting when comparing the R1000G vs. R2000V:
  • Small value outperformed large growth by more than 2.5 percentage points three times over a five-trading day span (July 11, 16, and 17). Return spreads that large are uncommon, occurring previously only 96 times out of 8,124 days going back to June 1993.
  • While small value still trails large growth over the past three years, the annualized deficit dropped from 10.73 percentage points as of July 10 to 5.76 percentage points through July 17. Nearly half the gap closed in the span of just five trading days.
    • I can add that the gap dropped to under 5% for the three year annualized return as of July month end.
• Non-US large cap stocks outperformed their domestic counterparts for the month but still trail over longer time periods.
• Global REITS gained 6% in July and are now up 11.8% over the last 3 months.

In bonds (fixed income):

• All of the bond benchmarks we follow were positive in July with 10+ yr Treasuries gaining the most (3.6%) while 5-10 yr Treasuries grew by a healthy 2.7%.
• We have talked about how the intermediate to long parts of the Treasury yield curve move in advance of any Fed decisions. As we know, the Fed has maintained the current Fed Funds rate, announcing no rate change at their meeting that just concluded earlier this week. At the same time, with recent inflation numbers showing a potential cooling, markets are now widely anticipating a September rate cut. With that as a backdrop, we saw Treasury rates drop across most of the curve over the month with the 2 yr Treasury declining 42 bps and the 10 yr falling by 27 bps, providing a tailwind for the Treasury returns mentioned above.

As always, please let us know if you have any questions by emailing support@xyinvestmentsolutions.com.

As an additional note, please keep in mind that these reflect historical performance of the current models, not necessarily how accounts were invested in the past.