Market Notes

July
28

Written by: Jon McGraw

Stocks were mixed on the week, with inflation coming in at a tempered rate, earnings season continuing.  Large-caps generally outperformed small-caps, which are negative year-to-date.  Sectors leading the way were energy and tech, up nearly a percent, while consumer staples and discretionary stocks lagged with negative results.

Developed market stocks in the U.K., Europe and Japan were little changed on net during the week, but peripheral Europe proved to be the winners.  Emerging markets experienced a solid week, with China leading the way—Chinese flash PMI from HSBC was stronger than expected, at 52, a 18-month high.

Indonesian markets have experienced a double-digit month with the election of a pro-reform advocate.  Hopes are similar to those of India, in that business-minded leadership will result in better ties to developed markets and more certainty in policy (as opposed to arbitrary, short-term political agenda-driven decisions emerging market nations are sometimes notorious for).  On the negative side, Russian stocks suffered on additional questions and tension with Ukraine, as well as a central bank 0.50% interest rate hike designed to bring some currency stability and reduce inflation risks amidst international sanctions.

Bonds gained on the long end of the yield curve, with rates down a few basis points, while the middle and shorter ends were little changed.  Accordingly, long treasuries gained a percent on the week, bringing year-to-date returns again to over +10%.  It was also a positive week for munis, high yield and floating rate.  Shorter indexes were generally flat to slightly negative on rates ticking up a few basis points.  Foreign bonds generally gained on the week, as did emerging market debt, with Italy and Europe in general higher, Japan flat, and Australia down a bit.

Mortgage REITs were the best and only positively-performing real estate segment, while U.S. industrial/office and European brought up the rear with negative returns.  While not technically part of the real estate sector, homebuilding stocks have fallen off in the last several weeks with poor sentiment around earnings and uninspiring new home sales numbers and a lack of household formation.

Commodities were flat on average, looking at the Bloomberg index, despite a half-percent gain in the dollar.  On the rising side were coffee, cocoa, nickel and copper, so the softs and industrial metals sub-indexes generally rose—the latter no doubt helped by Chinese PMI.  On the losing side, natural gas, cotton and corn fell back by several percent on the week.