As the major domestic equity indices continued to mark new highs through July, they provided an example of how dueling narratives can both be true while the forward-looking market produces a clearly positive result. In this case, optimism bolstered by a broad selection of economic data and sentiment – gross domestic product (GDP) growth, employment, earnings and the deflation of inflationary fears among them – has managed to, for now, contain COVID-19 delta variant worries.
The S&P 500 and NASDAQ Composite both set seven all-time highs in July while the Dow Jones Industrial Average recorded five. Under those glossy headline numbers, however, lies a more complex situation with wide disparities in performance between firm sizes, sectors, growth versus value, and commodities. For example:
Part of this dichotomy could be related to speculation and hedging around the yet-unknown effect on the economy of the COVID-19 delta variant. But even that is relatively muted compared to the volatility of last year, as widespread lockdowns are unlikely to reoccur.
Even better than it looks
At the end of the month, the U.S. Department of Commerce reported high GDP growth with a 6.5% annual rate in the second quarter, which follows 6.3% growth in the first. However, even this exceptional rate understates the strength of the economy in the first half of the year as consumer spending and business investments have surged.
However, expect growth to slow down a bit by the end of the year as the last of the pressure from more than a year of deferred spending drains out.
The bottom line
How the COVID-19 delta variant may affect the economy has yet to be revealed even as hospitalizations increase to record levels in some places. Meanwhile, we continued to see positive economic data and tallied another high-performance quarter through July. In total, even with contrasting performances beneath the surface, July was another strong month.
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All investments are subject to risk, including loss. All expressions of opinion reflect the judgment of the authors and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The S&P 500 is an unmanaged index of 500 widely held stocks. The S&P 500 Value is a market-capitalization-weighted index developed by Standard and Poor’s consisting of those stocks within the S&P 500 Index that exhibit strong value characteristics. The S&P 500 Growth Index is a stock index that represents the fastest-growing companies in the S&P 500. It is currently heavily weighted toward prominent American technology companies. The Russell 2000 is an unmanaged index of small-cap securities. An investment cannot be made in these indexes.
The performance mentioned does not include fees and charges, which would reduce an investor’s returns. Small-cap securities generally involve greater risks. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Material prepared by Raymond James for use by advisors.