U.S. Economic Data and Stock Market Report for July

Financial AnalysisBy Greg Naylor      July was an uneventful month, with U.S. economic data continuing to send mixed signals about the economy’s health. The market continues to listen carefully to messages from the Fed, with a lingering concern that tapering will happen sooner rather than later.

By the numbers:

Stocks & Bonds

After a soft June, most assets saw strong gains in July, as market participants focused on positive news and discounted negative news. Bonds reversed course and posted small gains, and American investors saw price appreciation in their foreign stocks aided by a falling dollar.

S&P 500 Total ReturnMSCI EAFEBarclaysAggregateBondUnadjusted CPI
July5.09%5.23%0.14%0.24%
June-1.34%-3.72%-1.55%0.18%
YTD 201319.61%7.51%-2.31%1.42%

Commodities & Currencies

NYMEX crude gained 8.91 % in July, up to $105.03 per barrel.  Gold rose 7.46% to a close of $1,313.00 per ounce.  For the most part commodities saw modest gains in July, after seeing declining prices for most of the first half of the year. The dollar index declined in July by 1.76%.

U.S. Economic Data – A Look at the Domestic Economy

The Labor Department reported that the unemployment rate ticked down slightly, from 7.6% in May to 7.4% in June, although the economy added only 162,000 jobs.  The Institute for Supply Management had surprisingly good news, reporting that the manufacturing PMI in June rose to 55.4, a strong gain from May’s 50.9, indicating a growing expansion in the manufacturing sector. Previous months had indicated a slight contraction.

The National Association of Realtors (NAR) reported that the annual rate of existing-home sales in June increased by 15.2% from June 2012. National median prices rose from the prior year by 13.5% to $214,200. Foreclosures and short-sales, as a percentage of overall sales, fell from 18% in May to 15% in June.  This is the lowest share since the NAR began keeping this statistic in October 2008.

Summary

In comments on July 31st, Bernanke changed his tone slightly in an apparent attempt to soothe the markets. Although U.S. economic data are showing signs of recovery, especially in the housing market, rising interest rates could quickly have a negative impact. The official unemployment rate continues to be aided not by the creation of new jobs (which, for the record, are primarily in lower-paying industries like retail and restaurants), but by discouraged Americans leaving the workforce entirely (presumably to go back to school, or stay at home). The labor participation rate in June stood at 63.5%, down from 66.5% 10 years earlier. In addition, the Personal Consumption Index (PCE) remains near historically low levels. The PCE is Bernanke’s preferred measure of inflation (the CPI is an older, and somewhat flawed, inflation gauge).  There continues to be a lack of investment in many sectors of the economy, from businesses reluctant to expand, to governments reluctant to invest in education and infrastructure, to individuals reluctant to take on any additional debt.  I believe Bernanke when he says that a “highly accommodative” monetary policy is needed for the “foreseeable future.”

 

This material was prepared by Greg Naylor, and does not necessarily represent the views of Woodbury Financial or its affiliates.  This information should not be construed as investment, tax or legal advice and may not be relied upon for the purpose of avoiding any Federal tax liability.  This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.  The S&P500, MSCI EAFE and Barclays Aggregate Bond Index are indexes.  It is not possible to invest directly in an index. 

Investing involves risks and investors may incur a profit or a loss.  Past performance is not an indication of future results.  There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Data Sources:

About Greg Naylor: Greg is a partner and co-founder of Fiat Wealth Management, an independent financial advisory firm in Long Lake, Minnesota. He has been investing for over 7 years and enjoys sports, reading, singing, and spending time with family. Greg is a 2004 graduate of the University of Minnesota and lives in South Minneapolis with his wife Kat. Click here for more articles by Greg.

Twitter: @seeitmarket    Facebook:  See It Market

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

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