Please find our most recent market review below. Following the commentary, you will find a table of returns for widely available ETFs that represent the major markets. Below that are five simple portfolio mixes, composed of low-cost Vanguard ETFs. These can be used as a guide against which to compare your portfolio mix. We hope this information is of value to you.
– The AdvicePeriod Team
Monthly Market Review
By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer
Stocks and bonds mostly rose during July as they shrugged off the resurgence of COVID-19 cases throughout the country and focused on strong corporate earnings.
The total U.S. stock market (VTI) gained 1.74%, while developed international equities (VEA) edged upward by 0.50%. Emerging-market stocks (VWO), meanwhile, fell 5.89%. The total U.S. bond market (BND) gained 1.17%, while municipal bonds (MUB) were up 0.46%.
The generally positive returns occurred even as the surging Delta variant helped push new COVID cases from a seven-day average of 12,500 at the beginning of July to 78,400 by the end of the month.
COVID wasn’t the only market headwind. In mid-July came news that U.S. consumer prices had increased by 0.9% in June, the largest gain in 13 years. Many economists continued to argue that high inflation is related to the economy’s reopening and is likely to start cooling later in the year.
The Federal Reserve, which has been supporting the economy with ultra-low interest rates, continues to view inflation as transitory, but acknowledged that it will likely stay higher for longer than they initially thought. Meanwhile, corporate earnings came in strong in July. With nearly 60% of S&P 500 companies reporting earnings, a record 88% beat expectations, and 84% reported positive revenue results.
July brought news that the country’s economic growth in the second quarter had accelerated 6.5% on an annualized basis. That growth fell short of expectations but still improved on the first quarter’s 6.3% result. Meanwhile, the economy created 943,000 jobs during July, and unemployment fell to 5.4% from 5.9% the previous month. July’s job gains were the most since August of 2020.
In the bond market, Treasury yields continued to fall, with the rate on the 10-year bond dropping to 1.23% from 1.44% in July. The 30-year bond yield fell from 2.06% to 1.90%. The decline in Treasury yields signals that investors are concerned about economic growth in the second half of the year.
But the big picture is that the recovery continues. The Atlanta Fed projects that gross domestic product will grow by another 6.3%, annualized, in the third quarter.
Projections aren’t promises, of course. No one can anticipate where the economy and markets will stand at this time next month, or next year. As always, smart investing means maintaining long-term market exposure and minimizing taxes and fees. Don’t hesitate to contact us if you’d like to discuss your investments.
Major Market Index Returns Period Ending 8/1/2021 (Annualized)
Selections include widely available ETFs. Multi-year returns are annualized and net of management fees, but do not include trading and advisory fees. Return source: Morningstar. AP Disclosure
Sample Portfolio Mix Returns (Annualized)
Global portfolio mixes comprise stocks and bonds, as represented by VT (Vanguard Total World Stock Index Fund ETF) and BND (Vanguard Total Bond Market Index Fund ETF). Multi-year returns are annualized. Performance is net of all management fees but does not include trading and advisory fees. Return source: Morningstar. AP Disclosure
What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks
Trailing 10 Years Numbers As of December 31st, 2020 – S&P Spiva Scorecard
Percentage of US large-cap funds that underperformed their benchmarks
US large-cap benchmark:
Percentage of international funds that underperformed their benchmarks
S&P International 700
Percentage of emerging market funds that underperformed their benchmarks
Emerging Markets benchmark:
The SPIVA Scorecard is a robust, widely-referenced research piece conducted and published by S&P DJI that compares actively managed funds against their appropriate benchmarks on a semiannual basis.
Bloomberg (2021, July 2): U.S. Jobs Jump by Most in 10 Months as Economy Gains Steam
U.S. Consumer Price Index, June 2021
U.S. Producer Price Index, June 2021
Federal Reserve Bank of Dallas: Trimmed Mean PCE Inflation Rate
10 Year Treasury Rate
Reuters (2021, July 1): U.S. CBO doubles growth forecast to 7.4%; sees slight drop in federal deficit