U.S. Equities Market Attributes July 2024 (2024)

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Key Highlights

• The S&P 500^® was up 2.28% in August, bringing its YTD return to 18.42%.
• The Dow Jones Industrial Average^® increased 1.76% for the month and was up 10.28% YTD.
• The S&P MidCap 400^® fell 0.21% for the month, bringing its YTD return to 11.14%.
• The S&P SmallCap 600^® lost 1.62% in August but was up 7.15% YTD.

Market Snapshot

August continued July’s volatility and uncertainty, but in the end, the S&P 500 delivered gains (2.28%, 2.43% with dividends), just as July had done (1.13%, 1.22%), as the index closed the month (5,648.40) just shy (-0.33%) of its July 16, 2024, closing high (5,667.20) and was up 18.42% YTD (19.53% with dividends). The Magnificent 7 still counted, but its dominance of overall returns was diminished (at least for August), as the group as a whole reduced the S&P 500’s total return by 0.75% for August. On a sector basis, consumer groups stood out, as spending and inflation concerns pushed Consumer Discretionary down 1.08% for the month (up 5.78% YTD), while Consumer Staples was up 5.78% (up 15.78% YTD), the best sector in the index for the month. Energy took the lead on the way down, as pump prices continued to decline (which is unusual during the summer driving months), with the sector falling 2.32% for the month (8.72% YTD). For the three-month period, the S&P 500 posted a gain of 7.03% (7.39% with dividends), with the YTD return up 18.42% (19.53%), which annualizes to a rate of 28.66% (30.46%), and the one-year return was 25.31% (27.14%). Breadth for August declined but stayed strongly positive, as 355 issues were up and 148 down (July YTD was 364 up and 139 down). August posted gains for 13 of its 22 trading days (14 of 22 last month; 82 of 146 YTD), as 8 days moved at least 1% (5 up and 3 down). Of the 11 sectors, 9 were up (9 were up last month as well), as trading increased 1% (adjusted for days) over July and was up 2% over August 2023.

The S&P 500’s market value increased USD 1.059 trillion for the month (up USD 0.536 trillion last month) to USD 47.448 trillion and was up USD 7.400 trillion YTD; it was up USD 7.906 trillion for 2023 and down USD 8.224 trillion in 2022.

The Dow Jones Industrial Average set four new closing highs for August (26 YTD; 41,563.08 closing high and 41,585.21 intraday high), after setting three in July. The Dow^® ended the month at a new closing high of 41,563.08, up 1.76% (up 2.03% with dividends) from last month’s close of 40,842.79, when it was up 4.41% (4.51%) from the prior month’s close of 39,118.86 (1.12%, 1.23%). For the three-month period, The Dow was up 7.44% (7.95%), as the YTD period was up 10.28% (11.75%). The one-year return was 19.70% (22.06%); 2023 was up 13.70% (16.18%), while 2022 posted a decline of 8.78% (-6.86% with dividends).

Target prices continued up, as the S&P 500’s one-year Street consensus target price increased for the ninth consecutive month, after declining for 2 consecutive months, which followed 11 consecutive months of gains (which was after 9 consecutive months of declines), to 6,238, a 10.4% gain (10.8% last month) from the current price and up from last month’s 6,119 (5,972 the month before that). The Dow target price also increased for the ninth consecutive month, after two consecutive months of declines, which was after three consecutive months of gains, to USD 44,282, a 6.5% gain (8.0% last month) from now (44,097, 43,158).

In U.S. election news, the Democratic National Convention (held Aug. 19-22) nominated Vice President Kamala Harris as its candidate for president and Governor Tim Walz of Minnesota for vice president. They will oppose the Republican ticket of former president Donald Trump for president and Senator JD Vance from Ohio for vice president for the Nov. 5, 2024, election.

Campaigning for the presidential election increased, as polls showed a close race, with most within the statistical margin of error for the White House and conflicting predictions for the control of Congress (Senate and House of Representatives).

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The past few weeks have been busy for major central banks, as they announced their next move to tackle market conditions according to their respective positions. To kick things off, China cut the one-year loan prime rate by 10 bps to 3.35% to support their economy, its first cut in a year. Likewise, the Bank of England lowered its interest rate by 25 bps to 5.0% on Aug. 1, 2024, for the first time in more than four years.

In the U.S., the FOMC decided to hold interest rates steady in July, but it signaled a willingness to make the first reduction in September if certain conditions regarding inflation targets, economic growth and the labor market are met. Conversely, the Bank of Japan decided to raise its key interest rate to about 0.25% (up from zero-0.1%) to prevent the yen’s slide against other major currencies.

As of Aug. 2, 2024, the 10-2 Year Treasury Yield Spread has tightened to -0.08%, its highest point in two years.

U.S. Treasuries—as represented by the iBoxx $ Treasuries—gained 2.23% in July. During the same period, Japanese government bonds, as represented by iBoxx Global Government Japan (in local currency terms) lost 0.10%. However, due to the rally in the Japanese yen against the U.S. dollar, the index in USD unhedged terms gained 6.80%. Chinese government bonds—as represented by iBoxx Global Government China (USD Unhedged)—inched up by 1.40%.

iBoxx Asian Local Bond Index (ALBI)

Similar to U.S. Treasuries, the iBoxx Asian Local Bond Index (ALBI) gained 2.34% in USD unhedged terms. This was contributed to by all underlying markets posting positive returns, as well as most local currencies appreciating against the greenback. Year-to-date, the index returned 0.14%.

In the local markets, South Korea (up 2.39%) and Singapore (up 2.17%) led the pack, while China Offshore and China Onshore were at the bottom, despite registering gains of 0.45% and 0.78%, respectively.

Returns were observed across the yield curve, with the longer-end maturity segments driving most of the gains. Hong Kong 10+ and South Korea 10+ were once again among the top 2 segments, returning 4.83% and 4.40%, respectively.

As of the end of July, the overall index yield contracted by another 14 bps to 3.74%. India reassumed its position as the highest-yielding bond market, posting 7.01%, while China Onshore (2.13%) remained the lowest-yielding market.

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Featuring iBoxx USD Asia-Pacific

July 2024 Commentary

Mixed inflation results globally in July led central banks to adopt different policy stances and administer various policy rate moves in their respective economies. On the back of cooling inflation numbers, the Bank of Canada and Bank of England lowered their policy rates. The U.S. Federal Reserve (Fed) also signaled that rates could be cut as soon as September. With the Japanese yen sliding against the U.S. dollar by 13.85% in the first half of 2024, the Bank of Japan raised interest rates to the highest level in 15 years, to 0.25%, causing the yen to sharply rebound in July. Central banks in other key Asian markets, except China, kept interest rates unchanged.

10-year U.S. Treasuries yields—as represented by the iBoxx USD Treasuries Current 10-Year—dropped by 32 bps to 4.10%. This is U.S. Treasuries’ third consecutive positive month, their longest streak since 2021. The S&P 500^® reached a new all-time high level in the middle of July but lost steam in the second half of the month after disappointing earnings reports from some large-cap names. The index did, however, close the month with a modest 1.13% gain, with a YTD return of 15.78%.

Sluggish domestic demand continued to add deflationary pressures to China’s economy, threatening its ability to meet the growth target of 5%. To stimulate the economy, the People’s Bank of China (PBoC) announced cuts to its key short-term policy rate, market operations rates and benchmark bank lending rates. Chinese-issued U.S. dollar bonds—as represented by the iBoxx USD Asia ex-Japan China—were up 0.48%, while Chinese stocks—as represented by the S&P China 500 (USD)—were down 1.28%, bringing their YTD return to -0.55%.

The Asian U.S. dollar bond market ended the month with a 1.64% gain, supported by a 1.65% rise in the high yield segment and a 1.64% gain in investment grade bonds. For the one-year period, the high yield segment was the best performer, with a gain of 13.53%. The China Real Estate segment posted a 3% gain in July and brought its one-year performance out of the negative territory with an 11.45% return. The APAC ex-China U.S. dollar bond market outperformed the Asian U.S. dollar bond market by 8 bps in July.

All rating and maturity segments rallied this month, with the exception of the CCC 7-10 years and B 10+ years buckets, which had no representative bonds. In the first half of the year, high yield segments outshone investment grade segments. In July, investment grade bonds were almost on par with the high yield segment, with the long end of the investment grade segment outperforming the shorter end. At the same time, gains were scattered across the high yield segments. For the YTD period, high yield bonds posted 11.53%, while investment grade bonds posted 3.01%.

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July 2024 Commentary

Market Overview

July 2024 was flooded with economic and political headlines; from the cooling of the U.S. economy to the elections in Venezuela, it was a busy summer month of uncertainty in the market. The U.S. FOMC decided to keep rates unchanged, citing that “economic activity has continued to expand at a solid pace” and “job gains have moderated”while inflation has made progress towards the 2% goal. The committee maintained the target rate at 5.25-5.5%. The latest CPI numbers for June 2024 showed a 0.1% decrease, including gasoline, which fell 3.8%, bringing the CPI over the last 12 months to 3.00%. The unemployment rate for the U.S. increased to 4.3% in July, while the economy added 114,000 jobs, lower than expectations. The repo rate was unchanged compared to June, ranging from 5.25 to 5.40. According to the BEA estimated release, U.S. GDP for Q2 2024 was 2.8%, up from 1.4% in Q1 2024.This figure may be revised at the end of August.

China became the leading supplier of vehicles to Mexico with sales of USD 4.6 billion, surpassing the U.S. 2023 figure of USD 4.4 billion. The Ministry of Economy also stated that during the first five months of 2024, automobile imports from the U.S. decreased by 13.9% while China’s increased by 50.8%. Additionally, the IMF released the first interview for the World Economic Outlook and projected Mexico’s GDP to increase by 2.2% this year, down from 3.2% in 2023.

The eurozone’s annual inflation was 2.6% in July, up from 2.5% in June, with services bringing in the biggest increase. The HSBC India Manufacturing PMI posted 58.1 in July, down from 58.3 in June, citing the fastest expansion in international sales for over 13 years and significant job creation.

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Key Highlights

• The S&P 500^® was up 1.13% in July, bringing its YTD return to 15.78%.
• The Dow Jones Industrial Average^® increased 4.41% for the month and was up 8.37% YTD.
• The S&P MidCap 400^® gained 5.73% for the month, bringing its YTD return to 11.38%.
• The S&P SmallCap 600^® added 10.71% in July and turned positive YTD, up 8.92% YTD.

Market Snapshot

The first half of July continued the 2024 gains and new closing highs (7 in July and 38 YTD); the last closing high (of 5,677.20; intraday high of 5,669,67) was on July 16, when the S&P 500 was up 3.79% month-to-date and up 18.90% YTD. However, starting on July 17, 2024, the perception and economics changed, with reallocation to small caps from large caps, especially in Information Technology (including the Magnificent 7). The index then declined 4.72%, putting it into the red month-to-date (-1.12%), as some buying and bottom-fishing came in to lift the market. The S&P 500 posted a strong 1.58% gain on the last day of the month, helped by expectations of the U.S. Fed decreasing interest rates at its next meeting, resulting in the index posting a gain of 1.13% for July (1.22% with dividends), as it avoided a second monthly decline for 2024 (April was -4.16% and -4.08% with dividends); June was up 3.47% (3.59%) and May added 4.80% (4.96%). For the three-month period, the S&P 500 posted a gain of 9.66% (10.05%), with the YTD return up 15.78% (16.70%), which annualizes to a 28.26% (29.99%) rate; breadth improved to 364 issues up and 139 down (June YTD was 301 up and 200 down). July posted gains for 14 of its 22 trading days (12 of 19 last month; 82 of 146 YTD). Of the 11 sectors, 9 were up (5 up last month), as trading decreased 10% (adjusted for days) over June and was down 4% over July 2023.

The S&P 500’s market value increased USD 0.536 trillion for the month (up USD 1.546 trillion last month) to USD 46.379 trillion and was up USD 6.340 trillion YTD; it was up USD 7.906 trillion for 2023 and down USD 8.224 trillion in 2022.

The Dow Jones Industrial Average set three new closing highs in July (22 YTD; 41,198.08 closing high and 41,221.98 intraday high), as it closed above 40,000 and 41,000 for the first time. The index’s decline from its highs was limited, helped by being a price-weighted index with limited weight in the Magnificent 7. It closed at 40,842.79, up 4.41% (4.51% with dividends) from last month’s close of 39,118.86, when it was up 1.12% (1.23%) from the prior month’s close of 38,686.32 (2.30%, 2.58%). For the three-month period, The Dow^® was up 8.00% (8.53%), as the YTD period was up 8.37% (9.52%). The one-year return was 14.86% (17.22%), 2023 was up 13.70% (16.18%) and 2022 posted an 8.78% decline (-6.86%).

Donald Trump became the official Republican candidate for president at the Republican convention (July 15-18). Polls at the time had shown Donald Trump's lead was increasing, and the Street had started to take positions based on a second Trump administration. On July 13, 2024, Trump survived an assassination attempt with minor injuries. At the start of July, President Joe Biden continued to address his poor presidential debate performance on June 27 (the second debate is scheduled for Sept. 10), ahead of the Democratic convention on Aug. 19-22. He was diagnosed with COVID-19 and was facing calls for him to leave the presidential race, as he recovered and returned to work. On July 21, 2024, President Joe Biden said he would not run for re-election, choosing instead to endorse his vice president, Kamala Harris, to be the Democratic candidate.

The Fed minutes from its June 11-12, 2024, meeting showed the members saw that upward price pressure was diminishing, but the group favored a wait-and-see approach before taking any action. Fed Chair Jerome Powell testified before Congress (a semiannual requirement) and indicated that interest rate cuts were coming, but gave no indication of the timeline, as he remarked that there are other risks to the economy (and responsibilities of the Fed), referring to employment. The Fed Beige Book showed slowing growth and a loosening labor market, as inflation was declining and the Street saw it as supporting evidence for a September interest rate cut by the Fed.