What happened in July?
Global stocks moved higher in July amid of variety of positive economic indicators. In the U.S., the Commerce Department reported the economy grew at an annualized 2.6% in the 2nd quarter, up from 1.4% in Q1. The lifted growth precedes the current earnings season which, thus far, is exceeding analysts’ expectations. As of July 28th, 57% of the S&P companies had reported earnings with 73% displaying sales above consensus. If this trend holds, it would be a new record for the percentage of companies reporting better sales figures than analysts predicted. Across the globe, economic growth in the Eurozone also accelerated in Q2 while China’s Caixin manufacturing index showed improvement. The positive data boosted U.S. equities with the S&P 500 Index +2.1% in July and +11.6% YTD. The ACWI ex-U.S., an index measuring international stocks, increased +3.7% in the month and now sits at +18.3% for the year. International equities are on pace for their best year since 2009.
Moving into August
While strong economic data continued to lift global equities, valuations remain stretched and the sentiment signals that accelerated after the Trump election have softened. Interest among hedge funds in shorting stocks increased in July at the same time the UM Consumer Sentiment Survey declined for the 2nd consecutive month. So while economic data is improving, retail and institutional sentiment about the future is taking a more cautious posture. We enter August 80% invested in our U.S. tactical strategies and a near 100% investment level in international equities.
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Valuation Stock prices continued to advance in response to a strong Q2 earnings seasons, keeping P/E multiples stretched at 21.3. |
Sentiment UM Consumer Survey dropped for the 2nd consecutive month along with an uptick in short interest. Equity fund (SPY) flows rebounded after three months of outflows. |
Macroeconomic U.S. GDP growth rebounded in Q2, increasing 2.6% in the quarter. Unemployment remained near lows at 4.4% while housing starts rebounded 8.3% in June. |
Technical Short-term momentum rebounded in late July as the S&P 500 Index moved 1% above its 50-day moving average and remained 6% above the 200-day. |
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