Sara J. Walker, CFA, Senior Vice President and Portfolio Management Team Leader with the Milwaukee office of Associated Trust Company, is known for her in-depth analysis of current market trends and objective outlook for the economy. Her informative points are derived through thorough economic research and highlighted in her monthly discussions and quarterly newsletter, the Economic and Investment Environment. Below are her highlights for July:
- July was a partly sunny or a partly cloudy month for stock market investors depending on their portfolios. The S&P 500 stock market index gained +1.39% and the NASDAQ composite lost -0.21% for the month (on a total return basis). Foreign stocks, as measured by the Morgan Stanley EAFE (Europe, Australasia and the Far East) index, gained some ground with a +1.12% total return.
- Big was beautiful in the month of July. As noted by the Russell 1000 and 2000 indexes, large companies gained +1.19% for the month while small companies fell -1.38%. Defensive sectors such as telecom and electric utility stocks outperformed cyclical sectors given worries about economic sluggishness.
- Those worries were driven by continued bad news emanating from Europe. This contributed to strong bond market performance as investors shunned risk. The Barclays Government/Credit index of bond market performance showed a total return of +1.64% in July. U.S. Treasury Notes were the strongest bond market segment with a gain of +1.36% in the Barclays 7-10 year U.S. Treasury index.
- European leaders continued to talk the talk without walking anywhere. Toward the end of July, European Central Bank chairman, Mario Draghi, declared the bank would do "whatever it takes" to support the euro currency. One week later, investors still waited for action. Germany continued to resist Draghi's overtures, preferring austerity over leniency for the debt-laden countries.
- The Euro-zone Purchasing Manager Index (manufacturing) was reported at 44, which was worse than expected and the lowest level since June 2009. China's manufacturing Purchasing Manager Index came through at 50.1, which was an eight-month low. When these measures of manufacturing activity drop below 50, economies are considered to be contracting.
- The U.S. did not escape this predicament. At 49.8, its manufacturing PMI stayed below 50 for the second-consecutive month. Most disturbing was the new orders component, which showed no recovery from its 12.3 point decline in June. This is one of the most forward-looking components of these measures of manufacturing activity.
- This weakness led many to expect July's employment report to be especially disappointing. Forecasts of little to no job creation were somewhat put to rest when the U.S. Bureau of Labor Statistics reported job gains of +163,000. This report continued to be affected by seasonal adjustments and the usual lack of transparency. Investors, however, reacted positively to the news with the S&P 500 up in each of the five days after the report.