Authored by :
Michael G. Dow, CAIA, CFA, CPA, Chief Investment Officer
Julien R. Frazzo, Director of Risk Management and Securities Research
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The Quick Facts
- The S&P 500 rises 20.6% YTD, its best performance through the first seven months of the year since 1997
- Tech-heavy Nasdaq 100 surges 44.7% this year, recouping most of its 2022 losses
- All sectors post gains, led by Energy, which stages a strong reversal from the prior quarter’s losses
- The Federal Reserve (“Fed”) approves another interest rate hike that takes the benchmark borrowing cost to its highest level in more than 22 years
- Fed Chair Jerome Powell says the central bank will make data-driven decisions on a “meeting-by-meeting basis”
- Inflation of the Personal Consumer Expenditure (“PCE”) Price index, the Fed’s preferred price gauge, slows further to 3% year-on-year, the lowest level since March 2021
- The latest macro data, including GDP, employment and inflation data, raise the odds of a soft landing
Powered by optimism surrounding softening inflation alongside strong earnings from Big Tech, the U.S. market rally gained steam in July, with the S&P 500 up 3.2%. All sectors posted gains, led by Energy, which staged a strong reversal from the prior quarter’s losses.
The S&P 500 has risen 20.6% in 2023 and is recording its best performance through the first seven months of the year since 1997. Even more impressively, the Nasdaq has surged 44.7% this year. The market continued up in July, as earnings met their slightly lowered expectations and were nowhere near an earnings recession. A key trading takeaway for the month was the broadening of the returns with the Russell 3000 (All cap index) and Russell 2000 (Small cap index), both posting higher July returns than the S&P 500, at 3.6% and 6.1%, respectively.
The latest macroeconomic data, including GDP, employment and inflation data reported at the end of July, raised the odds of a soft landing for the U.S. economy. The economy grew 2.4% last quarter, exceeding the 2.0% growth in the first quarter, suggesting the U.S. activity is steering clear of recession.
July Asset Class Performance

Jobless claims are also falling, reaching their lowest levels since February. This suggests that companies are stridently avoiding layoffs. The unemployment rate declined from 3.7% to 3.6%, suggesting the labor market remains strong. Job openings have fallen from a record 12 million in March 2022 but remain above the pre-pandemic level of about 7 million, reflecting a gradually slowing yet still-robust labor market.
On a total return basis, all sectors were up in July, from 1.1% for Health Care to as much as 7.8% for Energy. Communication Services and Information Technology were the best-performing sectors YTD, up 44.0% and 43.9%, respectively, while Health Care and Utilities showed the largest decline, falling 0.5% and 3.4%, respectively. Large-cap Value stocks outperformed Large-Cap Growth stocks by 10 basis points in July. The Russell 1000 Growth index is now outperforming the Russell 1000 Value index by 24.6% YTD. However, over the last three years, the total return of the Large-cap Value index is ahead of Large-cap Growth by 4.7%. The ESG segment of the market, as measured by the MSCI USA ESG Select Index, was up 3.3% in July, broadly in line with the S&P 500. Over the last three years, the ESG index is up 44.3% and 3.9% behind the S&P 500 on a total return basis.
On July 26, the Fed approved a much-anticipated interest rate hike that took benchmark borrowing costs to their highest level in more than 22 years. In a move that financial markets had completely priced in, the central bank’s Federal Open Market Committee (“FOMC”) raised its funds rate by a quarter percentage point to a target range of 5.25%-5.50%. During a news conference, Chairman Jerome Powell said inflation has moderated somewhat since the middle of last year but hitting the Fed’s 2% target “has a long way to go.” Still, he left room to potentially hold rates steady at the Fed’s next meeting in September. Powell said the FOMC would be assessing “the totality of the incoming data” as well as the implications for economic activity and inflation.
Inflation of the Personal Consumer Expenditure (“PCE”) price index, the Fed’s preferred price gauge, slowed further to 3% year-on-year in June, the lowest level since March 2021. Excluding the volatile food and energy components, the so-called core PCE price index rose 4.1% year-on-year, the smallest advance since September 2021. Fixed-income investors have remained on edge over how long the Fed can keep interest rates at restrictive levels without sparking an economic downturn. Timing such a shift is important in part because a weaker economy would cause the Fed to cut rates, weigh on the high yields many have enjoyed this year and spark a rally in bond prices. The yield on the benchmark U.S. 10-year Treasury now stands at 3.96% compared to 3.47% at the end of March. Shorter term 2-year U.S. Treasury now yields 4.88%. The yield curve remains inverted, with the U.S. 2-year Treasuries yielding 92 basis points more than 10-year maturities as compared to a 55 basis-point inversion at the beginning of the year.
Oil prices, as measured by the WTI Crude Oil, jumped 15.8% higher in July, with WTI crude topping $80 a barrel for the first time since April, supported by supply tightness following OPEC+ production cuts and renewed bullishness on the outlook for Chinese demand and global growth. WTI traded as high as $123.70 back in March 2022, a 14-year high. Gold spot prices gained 2.4% in July to close at $1,965/Oz, up 7.7% YTD. Cryptocurrencies were marginally down in July after a strong first half of 2023 with Bitcoin up 76.6% YTD while Ethereum was up 54.5% YTD. The U.S. Dollar Index (DXY) lost another 1.0% in July. YTD, the U.S. Dollar Index is now down 1.6% on the expectation that the foreign central banks are lagging the Fed on their rate hikes.
Interest rate volatility has been constant since the Fed began its rate-hiking cycle last year. While equity investors look to the CBOE Volatility Index (“VIX”), bond investors focus on the ICE BofA MOVE (“MOVE”) Index, which measures bond market volatility. The MOVE Index remains elevated at 112 compared to historical averages, which reflects the highly uncertain rate environment. The VIX, on the other hand, kept trading at historically low levels reached in June, closing July at 13.6, a level not seen since early 2020, pre-pandemic.
Chart of the Month – Growth versus Value
“Growth” and “Value” are two fundamental investment styles used by investors to categorize and analyze different types of stocks. Each style has its own characteristics and appeals to different types of investors, depending on their investment goals, risk tolerance, and market conditions.
Growth stocks are shares of companies that are expected to grow at an above-average rate compared to other companies in the market. These companies usually reinvest their profits back into the business to fuel expansion rather than distributing dividends to shareholders. Investors who are optimistic about a company’s future prospects and willing to accept higher risks may prefer growth stocks. However, it’s important to note that growth stocks can be more volatile and susceptible to market downturns.
Value stocks are shares of companies that are considered undervalued by the market relative to their intrinsic worth. These companies may have solid fundamentals and stable earnings, but their stock prices may not reflect their true value due to various factors. Value stocks are appealing to investors who seek stability, regular income from dividends, and believe that the market has undervalued certain companies. Value investing follows the principle of “buying low and selling high.”
It’s important to note that the choice between growth and value investing is not mutually exclusive. Many investors build diversified portfolios that include both growth and value stocks to balance risk and potential returns. Market conditions and economic factors also play a role in determining which style may perform better at different times.
Overall, both growth and value investing strategies have their merits, and we believe the best approach depends on an investor’s financial goals, risk tolerance, and time horizon. Diversification and a long-term perspective are essential components of a well-rounded investment strategy. Value is currently cheap versus Growth based on rolling 10-year relative performance.

Quote of the Month
“Know what you own, and know why you own it.” — Peter Lynch
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