- The S&P 500® was up 3.11% in July, bringing its YTD return to 19.52%.
- The Dow Jones Industrial Average® increased 3.35% for the month and was up 7.28% YTD.
- The S&P MidCap 400® posted 4.05% for the month, bringing its YTD return to 12.26%.
- The S&P SmallCap 600® was up 5.43% in July and had a YTD return of 10.79%.
The market continued up in July, as earnings met their slightly lowered expectations and were nowhere near a recession—let’s say it was a “noticeable slowdown,” which is the term U.S. Fed Chair Jerome Powell used when he said the U.S. Federal Reserve no longer expected a recession. The economic outlook improved, as consumers remained strong (but more selective), and earnings came in better, with forward estimates showing growth. The Street, however, seemed to be split on the chances of a recession. The FOMC raised interest rates by 0.25%, and the Street was also split on whether the Fed will do another interest rate hike, with the good news being that it seems to have accepted if the Fed does “one for the road,” as long as it’s a farewell hike; the Street also expects 2024 to be the year of the cut (“don’t expect and you won’t be disappointed,” but expectations are what make trades).
A key trading takeaway for the month was the broadening of returns, as breadth declined but remained strong. For June and July, the S&P 500 TR was up 10.03% (6.61% in June and 3.21% in July). The top 10 issues contributed 34.4%. Gone are the days when 8 issues (7 companies) accounted for all the gains (excluding them, the market would have been negative), as it now takes 331 issues to negate the index for the period after May 31, 2023. Not that size doesn’t count (Apple, NVIDIA and Tesla still headed the June-July list, accounting for 19% of the gains, as Information Technology accounted for 24.5%), but the broad gains helped feed the hope for a full recovery. Of course, the catch-up from the new smaller grunts doing the work and some profit-taking from the big guys has taken a little away from the recovery view. If the trend continues, and if the top is already saturated and fully priced, their contribution will slowly decline in the YTD stats, but for full-year 2023, absent a top belt down, the year should still show a top-heavy contribution list, due to the opening five-month performance.
For July, the S&P 500 closed at 4,588.96, up 3.11% (3.21% with dividends) from last month's close of 4,450.38, when it was up 6.47% (6.61%). For the three-month period, the index was up 10.06% (10.51%), while the YTD return was up 19.52% (20.65%) and the one-year return was 11.11% (13.02%). For the month, all 11 sectors gained, just like they did in June, up from 3 in May and 8 in April. Energy did the best, gaining 7.28% (down 0.50% YTD and up 58.25% from the 2021 close), and Health Care did the worst, up 0.85% (down 1.49% YTD and down 4.99% from the close of 2021). Breadth for the month decreased but stayed strongly positive, as 362 issues were up (454 last month and 124 the month before that), with 77 (152, 32) issues up at least 10% and 7 (20, 7) up at least 20%, while 141 (49, 379) declined, with 12 (3, 91) declining at least 10% and none (0, 11) down at least 20%. Year-to-date, breadth increased, as 329 (300 last month) issues were up, with 221 issues up at least 10% and 129 up at least 20%, as 174 (203) were down, with 72 issues down at least 10% and 19 down at least 20%. On an aggregate basis, the S&P 500 increased USD 1.107 trillion (up USD 6.742 trillion YTD) to USD 38.269 trillion (it declined USD 8.224 trillion for 2022). It was up USD 910.205 trillion from the Feb. 19, 2020, start of the COVID-19 pandemic.
As for August, trading tends to slow down and the streets get hot (hard to believe after last week’s heat wave), as many leave for summer vacation (given the current foot traffic downtown, that might leave no one—even the food trucks are few). It is, however, a great time to visit Washington, which is not expected to be as hot, given the Senate is in recess until Sept. 5 and the House until Sept. 12 (although closed door work on the next crisis situation—the budget—will be going on). Earnings should continue to dominate the first half of the month, as retail also declares and lets us know how much we have spent (and where). The first presidential debate for the Republican party is Aug. 23, and the Jackson Hole symposium (Aug. 24-26) theme is “Structural Shifts in the Global Economy,” though the Street seems more interested in the Fed’s Sept. 19-20 meeting, and what (and when) new bank requirements will be implemented.