Marco Fragnito, Managing Principal | Robert R. Fragnito, Chief Operating Officer
- Stronger data continues to drive markets higher in July.
- Global central banks remain accommodative in efforts to lift economies.
Equity markets continued their upward march in July on stronger economic data, continued central bank support and better than expected corporate earnings. These factors provided the necessary boost to investor sentiment to raise markets to new recovery highs. The S&P 500 advanced 5.5%, while the Dow Jones Industrial added 2.4%, and the NASDAQ Composite went on to set multiple new all-time highs while posting a strong gain of 6.8% for the month of July.
While both political and trade tensions continued to increase, investors chose to focus on the developing domestic economic recovery. While the economic data remained mixed, investors’ confidence in a possible V-shaped recovery remained. Their focus was on the Institute of Supply Managements’ (ISM) gauges returning to expansionary territory for the month of June and a blow-out non-farm payrolls report showing a record 4.8 million jobs being added in June. Further lifting sentiment was the encouraging progress being made by several biotech and pharmaceutical companies towards the development of a vaccine for COVID-19. All these factors continued to fuel the stock market rally since late March.
Central banks across the globe remained accommodative and stood ready to provide further stimulus to lift their economies. The US Federal Reserve reiterated its promise to utilize its “full range of tools” to support our economy while continuing to implement existing and new lending facilitates. At the same time, the European Commission announced a massive 750 billion Euros stimulus package which for the first time was funded by a common bond issuance. US Treasuries yields remained at historic lows across the yield curve with indications that they would remain so well into 2021.
The precious metals sector strongly outperformed with COMEX gold jumping 9.0% to an all-time high, driven by a weaker dollar and continued uncertainty surrounding COVID-19. While the US Dollar has weakened recently, we would remind investors it nevertheless remains in the middle of its 20-year range and would caution as it relates to further exposure in the precious metals sector.
MARKET OUTLOOKWe continue to remain constructive on equity markets, our bullishness was tempered by the strong rally we have witnessed over the last 3 months. We have allowed cash levels to rise in our portfolios through trimming positions in sectors that have risen strongly, strategic sales and dividends. We would recommend investors proceed with caution in the fixed income and precious metals sectors.
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The opinions expressed here reflect the judgement of the author(s) as of this date and are subject to change without notice. Information presented here is for informational purposes only and does not intend to make an offer, solicitation, or recommendation for the sale or purchase of any product, security, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here. The information being provided is strictly as a courtesy.
Wells Fargo Advisors, Jack Kraft, “Monthly Market Commentary,” August 4, 2020.