Market Recap: July 2024

Market commentary

• The first estimate of second-quarter GDP indicates the economy expanded at a 2.8% annual rate, besting forecasts, and up from a 1.4% rate in the first quarter.
• Federal Reserve officials made no changes to short rates at the July meeting. While indicating that inflation is getting closer to its 2% target, they also implied the need for further progress.
• Core PCE, the Fed’s preferred inflation gauge, was unchanged from the previous month, rising by 2.6% in June.
• The unemployment rate crept slightly higher, increasing to 4.1%, the highest rate since early 2018 (excluding the pandemic).

Select economic and market data

Equities

• Reversing trends, the Communication Services and Information Technology sectors declined in July, while all others advanced. Subsequently, the tech-heavy S&P 500 and NASDAQ indices lagged.
• Growing expectations of rate cuts drove small-caps higher for the month, with the Russell 2000 posting double-digit returns.

Fixed income

• Rates continued lower in July, leading to another month of strong bond returns while YTD returns turned positive.
• The yield curve continued to progress toward a more “normal” shape, with the gap between 2-year and 10-year Treasury yields narrowing.

Strategic outlook

• Some caution is warranted on equities in the near-term, particularly in high-growth large-cap stocks after recent rally; currently favoring small-cap and mid-cap domestic stocks longer-term.
• Above-average volatility is likely given central bank involvement and geopolitical uncertainty.
• Near-average expected returns are projected for fixed income after period of rising rates and bond market sell‐off.