We’ve made it to back to school month and markets just carry on.
Little has changed in the cycle of headlines over the last few months. Oil and gas prices continue to spike and plummet as the War in Iran slows down and picks up. Inflation and interest rates are still a sticking point, especially as the FOMC welcomes Kevin Warsh in to lead the group. Artificial intelligence and chip stocks have continued to flip-flop between positive and negative expectations.
And it’s been really humid.
On the bright side for investors, the earnings growth from equities has trumped all and has sent prices climbing higher and higher. On the US side, small cap (Russell 2000 index) has been the big winner with returns through July 31st of just under 19% with US REITs not far behind up 17.7%. US large cap is up 10% in the same time period thanks in part to some of the largest stocks in the S&P 500 index like Nvidia, Amazon, and Broadcom. Interestingly, the equal weight S&P 500 index – where all holdings are the same percentage – is up just slightly more than the market weight index. Some of the smaller semiconductor or AI related companies that would then carry a larger weight have helped. We take this as a good sign as market breadth expands to more names.
For international equity markets, if the year came to a close with current returns as they are today, I would be very pleased. Developed markets (Europe, the UK, Japan, Canada, etc.) are up 12% as of the end of July. Emerging markets (Taiwan, China, India, etc.) have been even better, posting returns above 20% in just seven months. Taiwan currently has the largest allocation in the FTSE index and it’s paid off. The Taiwan stock market index is up 58%!
Across the board, returns have come from strong company earnings, which may help explain the strength in the face of the headwinds mentioned at the top.
Bonds, on the other hand, have struggled against the headwinds. Expectations at the beginning of the year called for continued interest rate cuts. Today, with inflation heating back up, expectations have changed to expect rates to hold firm or be raised before year end. As a result of these changes, the US 10-year treasury yields have climbed, pushing bond prices down. The strong yield in the US Aggregate bond index hasn’t been enough to offset the price decline, and the index has fallen -0.7%.
It’s a reminder that stocks and bonds aren’t always going to move for the same reasons. Equities have had earnings on their side, strong enough to shrug off a messy headline environment. Bonds don’t have that same lever to pull, and right now they’re mostly just reacting to where rates might be headed next. We’ll keep watching both, but as we always remind our readers, today’s headlines and tomorrow’s reality are seldom the same.
IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PDS Planning, Inc. [“PDS”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from PDS. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. PDS is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the PDS’ current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.pdsplanning.com. Please Note: PDS does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to PDS’ web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a PDS client, please contact PDS, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
