Stocks rally as bears take a summer recess

US stocks led a global equity rally in major developed markets in July, as momentum factors enjoyed their day in the sun (Table 1). However, the bulls will be tested once again as the bears return from leave in the face of central bank rate increases, increased recession risks including a second consecutive quarter of negative GDP in the US and a two-year low in the J.P.Morgan Global Manufacturing PMI™, with business optimism dipping to its lowest level since May 2020.

• US: High risk shares returned to favor while highly shorted shares suffered, as demonstrated by underperformance of 60-Month Beta and Demand Supply Ratio, respectively
• Developed Europe: Deep Value signals including Book-to-Market and TTM Free Cash Flow-to-Enterprise Value posted negative spreads in July
• Developed Pacific: Performance of high momentum shares surged last month in markets outside Japan, resulting in a spike in Industry-adjusted 12-month Relative Price Strength performance
• Emerging markets: A rebound in investors' favor towards momentum benefitted stocks with attractive Rational Decay Alpha scores

Table 1

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