July 2023 - Market Update

Data Dashboard

Stock Market

In July, the S&P 500 recorded a notable gain of 3.21%, contributing to a YTD return of 20.64%, the longest consecutive monthly positive streak since June 2021. US Small-Cap equities and Mid-Cap equities have demonstrated remarkable strength for the second consecutive month, with both rising significantly by 6.11% and 4.13% MoM, respectively.

All 11 S&P 500 sectors showed positive growth in July, and interestingly, the two sectors that were previously lagging (Energy and Financials) turned out to be the best performers, indicating a broader trend of positive market performance.

July Monthly Returns (by US Sector)

Bond Market

Over the past month, the US Aggregate Bond Index showed a modest decline of -0.07% MoM as strong economic data reduced recession concerns and pushed yields higher, inconsistent with lower inflation. Emerging market bonds surged by +1.2% MoM for the fourth time in five months, as the asset class benefited from a weaker dollar, and easing inflationary pressures.

High-yield bonds also showed impressive performance, rallying for the second consecutive month with a gain of +1.33% MoM. Resilient economic data and strength in energy prices, due to high yield's elevated energy exposure, led to a narrowing of credit spreads, reaching the lowest level since April 2022.

Economics

The preliminary reading of Q2 2023 GDP brought a positive surprise, showing a quarter-over-quarter growth of +2.4% (annualized). In July, the Fed implemented its eleventh interest rate hike, extending the most aggressive rate-hiking cycle witnessed in the last 40 years. Consequently, the target range now stands between 5.25% and 5.50%, marking the highest Fed rate in 22 years.

The four-week rolling average of jobless claims (~234k) has steadily declined after reaching an 18-month high in June, indicating an improvement in the labor market. However, job openings (9,582k) have fallen to their lowest level since April 2021, reflecting a loosening in labor market conditions. The pace of headline inflation has slowed to +3.0% year-on-year, the slowest rate since March 2021, while the pace of core CPI (+4.8%) has also decelerated for the third consecutive month.

Tactical Trades

In the Tactical Stock portfolio, we increased our positions in the Energy and Healthcare sector owing to the outperformance of these sectors over the month, while decreasing positions in the Financials and Utilities sector. For our Tactical ETF Portfolios, we reduced our exposure to the Mexican market and communication services sector, moving more into the energy and consumer discretionary sectors.

As for Tactical Fixed Income Portfolios, we remain invested in a short-term bond portfolio.

General Client Considerations

Below is a table showing the change in contribution limits for 2023:

We look forward to hearing from you!

Thanks,

The Friedenthal Financial Team

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