Overall, inflation continues to be the main topic on everyone's mind. The Fed obviously remains concerned about inflation as for the second month in a row, they raised the Fed Funds rate by another 75 bps, now reaching a range of 2.25%-2.5%. At the same time, data came out late last week that real GDP fell by -0.9%, the second straight quarter where it fell. As many of you know, a popular and common definition for recession is when GDP falls for two consecutive quarters, like just happened. However, we will have to wait on the National Bureau of Economic Research (NBER), the official keeper of US business cycles, to see if they determine whether we are indeed in the midst of a recession.
- After a tough second quarter in the equity markets, July finished with all equity indexes in the red, with the exception of emerging markets, which returned -0.2%. In fact, with the exception of frontier markets (1.2%), all other indexes shown had at least a 5% monthly return.
- Growth performed better vs. value in both US large cap and US small cap in July, with large cap growth (+12.0%) earning the highest monthly return.
- Small caps outperformed large caps both domestically and internationally for the month.
- In our last two quarterly reviews we have spoken about the rising dollar and how it negatively impacts the return of international equity indexes. To show how much this currency movement is impacting returns, the MSC EAFE NR USD has a return of -15.6% YTD, while the same index in local currency has only fallen -6.7%, for a difference of almost 900 bps. If you viewed the MSCI EAFE return in local currency on a YTD basis, it actually outperforms almost all US equity indexes.
- YTD, all equity indexes remain squarely in the red.
In fixed income:
- All fixed income indexes shown generated positive returns for the month with longer term bonds outperforming shorter term bonds.
- For the month, Corporates outperformed Treasuries and Munis with similar maturities.
- The yield curve has been on a wild ride this year, and July was no different. For example, the 6 month Treasury rose from 2.51% on June 30 to 2.91% on July 29. At the same time, the 10 year Treasury fell from 2.98% to 2.67% over the same time period, but it wasn't a smooth ride. To make the inverted yield curve more interesting, 20 and 30 yr Treasuries are at 3.2% and 3% respectively.
- ST TIPS continue to be a bright spot as the only benchmark other than 3 Month Tbills with a positive return over the last one year.
As always, please let us know if you have any questions by firstname.lastname@example.org.
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.