July was a positive month across all equity asset classes with International Developed, denoted by the MSCI EAFE Index, slightly outpacing the S&P 500 at 5.28% versus a 5.09% return. Emerging Markets came in at 1.09% with bonds at 0.14%, denoted by the Barclays US Aggregate Bond Index.
Year-to-date returns for the indices are listed below. Note that even though the S&P 500 is up 19.62% on the year, a diversified 60/40 stock/bond index -- Morningstar Moderate Growth -- is up a more modest 7.95%. The MSCI All Country World Index, which is the most typical institutional benchmark for a globally diversified equity portfolio, is up 11.13%.
The disciplined investor will recall the benefits of diversification and the amount of risk they are willing to accept in their investment portfolio rather than looking at the S&P 500 100% equity returns in hindsight and saying, "I want that." Recall the 'Lost Decade', which was really only 'lost' for the S&P 500 Index-centric investor who lost -29.48% (-3.43% average annualized return over ten years) of their money from 03/1999 through 02/2009 over the ten-year period. Conversely the Dimensional Fund Advisor Balanced Strategy Index -- a 60/40 stock/bond index -- would have cumulatively returned +44.41% (+3.74% annualized) over the same period.
| Index Performance | Total | |
| 01/01/2013 - 07/31/2013 | Return | |
| S&P 500 | 19.62 | |
| MSCI EAFE (net div.) | 9.60 | |
| MSCI Emerging Markets (net div.) | -8.62 | |
| Barclays US Aggregate Bond | -2.31 | |
MSCI All Country World (net div.) |
11.13 |
|
| Morningstar Moderate Growth 60/40 | 7.95 |
DOMESTIC ECONOMIC HEALTH
July offered both encouraging and discouraging economic statistics. The Institute for Supply Management’s July PMIs seemed to show an economy gaining traction. ISM’s manufacturing PMI leapt to 55.4 compared to 50.9 in June, and its service sector PMI jumped to 56.0 from the previous 52.2. The Commerce Department said that consumer spending was up 0.5% in June, corresponding to the projections of economists surveyed by Reuters; consumer incomes rose another 0.3 on the heels of a 0.4% improvement in May. Unemployment declined to 7.4% in July, but the pace of hiring also declined. Non-farm payrolls expanded by 162,000 jobs (compared to 188,000 in June), with retail, bar and restaurant positions representing much of the additions. Durable goods orders had increased 4.2% in June, but they were flat with the volatile transportation category removed. As the quarter ended, the federal government issued its first estimate of Q2 GDP: 1.7%, indicative of the economy’s slow comeback.2,3,4,5,6
July offered both encouraging and discouraging economic statistics. The Institute for Supply Management’s July PMIs seemed to show an economy gaining traction. ISM’s manufacturing PMI leapt to 55.4 compared to 50.9 in June, and its service sector PMI jumped to 56.0 from the previous 52.2. The Commerce Department said that consumer spending was up 0.5% in June, corresponding to the projections of economists surveyed by Reuters; consumer incomes rose another 0.3 on the heels of a 0.4% improvement in May. Unemployment declined to 7.4% in July, but the pace of hiring also declined. Non-farm payrolls expanded by 162,000 jobs (compared to 188,000 in June), with retail, bar and restaurant positions representing much of the additions. Durable goods orders had increased 4.2% in June, but they were flat with the volatile transportation category removed. As the quarter ended, the federal government issued its first estimate of Q2 GDP: 1.7%, indicative of the economy’s slow comeback.2,3,4,5,6
July also offered a mixed picture of consumer
confidence. The Conference Board’s July poll came in at 80.3, 1.8 points lower
than June’s reading and below the expectations of analysts surveyed by
MarketWatch. The reading on the University of Michigan’s final July consumer
sentiment index was better – 85.1, up a full point from June to its highest
level since July 2007.6,7
Prices increased in June, but it seemed more an
anomaly than a trend. The Consumer Price Index rose 0.5%, but a 6.3% leap in
gas prices was a major factor; the core CPI was up just 0.2%, and annualized
core inflation had increased just 1.6%, the smallest amount in two years. Wholesale
prices jumped 0.8% in June, though the core Producer Price Index only advanced
0.2%. Retail sales were up 0.4% in June; there was a 1.8% gain in auto
purchases and a 2.4% improvement in furniture sales.8,9,10
In early July, the Obama administration decided
to postpone the Affordable Care Act’s employer health insurance mandate for a
year. Businesses with 50 or more full-time employees won’t have to provide
health insurance to workers until 2015; retail franchises and restaurant owners
welcomed that decision. The move raised big-picture questions about whether all
aspects of the ACA (such as the coming online health insurance exchanges) could
be implemented on schedule. In mid-July, Federal Reserve chairman Ben Bernanke
cited the need for a “highly accommodative monetary policy for the foreseeable
future,” buoying financial markets. The central bank’s July 31 policy statement
offered no hint as to when it would start to reduce its asset purchases, and it
termed the current economic expansion “modest”, which seemed slightly less enthusiastic
than its “moderate” assessment from June.11,12,13
GLOBAL ECONOMIC HEALTH
Two closely-watched China manufacturing PMIs offered different estimates of the performance of the world’s biggest economic engine. The HSBC PMI came in at just 47.7 for July. The “official” PMI from China’s National Bureau of Statistics (which, incidentally, surveys a greater percentage of state-owned enterprises) rose 0.2 for July, showing a bit of expansion at 50.3. Still, this was nothing special. Neither was India’s July Markit manufacturing PMI reading of 50.1; Markit manufacturing PMIs for South Korea, Vietnam, Australia and Taiwan were all under 50 last month, with Australia’s dropping 7.6 points. HSBC and Markit service sector PMIs tracking Asian economies also moved lower in July; India’s showed contraction for the first time in 21 months at 47.9, and those for Japan (50.6) and China (51.3) showed slower growth.14,15
As mounting evidence of a slowdown came from
Asia, another question emerged in Europe. Was the Eurozone recession coming to
a close? The EU manufacturing sector grew in July for the first time since 2010
– the Markit PMI hit 50.5, up from 48.7 in June. Germany’s manufacturing PMI
reached a 5-month peak of 52.1, France’s hit a 17-month high of 49.1, and
Italy’s reached a 26-month high of 49.7. July also saw the fewest eurozone job
losses in 16 months, and the German economy saw a net job gain.14,15,16
WORLD MARKETS
Big gains were the order of the month, especially in Europe. The FTSE 100 climbed 6.53%, the DAX 3.98%, the CAC 40 6.79%, the RTSI 2.97% and the STOXX 600 5.11%. In the Asia Pacific region, some losses crept in among the gains: the Sensex slipped 0.26% and the Nikkei 225 0.07%, but that was overshadowed by advances for the KOSPI (2.72%), the KSE 100 (10.98%), the Hang Seng (5.19), the Shanghai Composite (0.74%) and the Asia Dow (1.17%). On our side of the pond, the TSX Composite rose 2.95%, the MERVAL 12.82% and the Bovespa 1.64%.The Global Dow advanced 5.87% in July, the MSCI World Index 5.19% and the MSCI Emerging Markets Index 0.77%.1,17
Big gains were the order of the month, especially in Europe. The FTSE 100 climbed 6.53%, the DAX 3.98%, the CAC 40 6.79%, the RTSI 2.97% and the STOXX 600 5.11%. In the Asia Pacific region, some losses crept in among the gains: the Sensex slipped 0.26% and the Nikkei 225 0.07%, but that was overshadowed by advances for the KOSPI (2.72%), the KSE 100 (10.98%), the Hang Seng (5.19), the Shanghai Composite (0.74%) and the Asia Dow (1.17%). On our side of the pond, the TSX Composite rose 2.95%, the MERVAL 12.82% and the Bovespa 1.64%.The Global Dow advanced 5.87% in July, the MSCI World Index 5.19% and the MSCI Emerging Markets Index 0.77%.1,17
COMMODITIES MARKETS
The price of NYMEX crude soared 9.15% in July. That put oil at $105.03 a barrel at the end of the month. Natural gas prices, on the other hand, descended 3.25%. Gold settled at $1,313.00 at month’s end, the culmination of a 7.46% monthly ascent. Silver went +1.45%, platinum +6.77% and copper +2.40%. As for crops, coffee lost 1.37%, but cocoa rose 4.74%, wheat 2.71% and sugar 2.48%. The U.S. Dollar Index lost 1.76% for the month.18,19
REAL ESTATE
On August 1, Freddie Mac’s Primary Mortgage Market Survey had the average rate on a 30-year fixed home loan at 4.39%, up from 4.29% on July 3 and 3.81% on May 30.20
On August 1, Freddie Mac’s Primary Mortgage Market Survey had the average rate on a 30-year fixed home loan at 4.39%, up from 4.29% on July 3 and 3.81% on May 30.20
Existing home sales fell 1.2% in June, with
tightening inventory being a factor; still, the National Association of
Realtors reported a 13.5% yearly improvement in the median sale price. The May
S&P/Case-Shiller Home Price Index recorded a 12.2% overall yearly rise in home prices
across 20 cities. New home sales were up 8.3% in June, with a
38.1% year-over-year increase in the sales pace (the best on record since
1992).6,21
Not all the news was so impressive. Pending home sales dipped
0.4% for June, partly reflecting the shrinking inventory of existing properties
on the market. As for building permits and housing starts, they both fell in
June: building permits sagged 7.5% from May but were up 16.1% annually, while starts
dipped 9.9% but were still up 10.4% in 12 months.6,22
The 0.58% rise in conventional mortgage rates
across two months was mirrored by other types of home loans. Average rates for 15-year FRMs went from
2.98% to 3.43%; average rates for 5/1-year ARMs and 1-year ARMs
were but 2.66% and 2.54% on May 30, yet respectively 3.18% and 2.64% by
August 1.20
UPCOMING ECONOMIC
RELEASES: For the rest of
August, here is how the schedule of news items plays out: June wholesale inventories (8/10), July retail sales and June business
inventories (8/13), July’s PPI (8/14), July’s CPI, July industrial output and
the August NAHB housing market index (8/15), July’s housing starts and building
permits plus the University of Michigan’s initial August consumer sentiment index
(8/16), July existing home sales and the July 31 Fed policy meeting minutes
(8/21), the Conference Board’s July index of leading indicators and the June
FHFA housing price index (8/22), July new home sales (8/23), July hard goods
orders (8/26), June’s Case-Shiller home price index and the Conference Board’s
August consumer confidence survey (8/27), July pending home sales (8/28), the
second estimate of Q2 GDP (8/29), and the final August University of Michigan
consumer sentiment index and the July consumer spending report (8/30). The
Labor Department issues the July jobs report on September 6.
Best Regards,
Kevin Kroskey
This article adapted with permission from MarketingLibrary.net.
Citations.
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5 - briefing.com/investor/calendars/economic/2013/07/22-26 [7/26/13]
6 - marketwatch.com/Economy-Politics/Calendars/Economic [8/1/13]
7 - tinyurl.com/ke8ykkl [7/26/13]
8 - forbes.com/sites/afontevecchia/2013/07/16/spiking-gasoline-prices-push-cpi-inflation-higher-but-weak-core-fuels-taper-uncertainty/ [7/16/13]
9 - briefing.com/investor/calendars/economic/2013/07/08-12 [7/12/13]
10 - usatoday.com/story/money/business/2013/07/15/retail-sales-rise-in-june-on-autos/2517443/ [7/15/13]
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14 - tinyurl.com/knwt8rt [8/1/13]
15 - telegraph.co.uk/finance/economics/10223494/Eurozone-recession-will-end-this-quarter-as-businesses-return-to-growth.html [8/5/13]
16 - tinyurl.com/mwakh4v [8/5/13]
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18 - money.cnn.com/data/commodities/ [7/31/13]
19 - online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [8/5/13]
20 - freddiemac.com/pmms/ [8/5/13]
21 - bloomberg.com/news/2013-07-24/new-home-sales-in-u-s-rise-more-than-forecast-to-five-year-high.html [7/24/13]
22 - census.gov/construction/nrc/pdf/newresconst.pdf [7/17/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=7%2F31%2F12&x=0&y=0 [7/31/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=7%2F31%2F12&x=0&y=0 [7/31/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=7%2F31%2F12&x=0&y=0 [7/31/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=7%2F31%2F03&x=0&y=0 [7/31/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=7%2F31%2F03&x=0&y=0 [7/31/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=7%2F31%2F03&x=0&y=0 [7/31/13]
24 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [8/5/13]
