July was a welcomed reprieve for US equity investors. The Dow Jones Industrial Average rose 6.8%, the S&P 500 got a 9.2% boost, and the NASDAQ surged 12.4%. July brought with it a slew of earnings reports that many feared would disappoint amid high inflation and a rising rate environment, but generally came in above expectations. Despite the advances made in July, US indices are still firmly in the red for 2022. The Dow is off 8.6% year-to-date, the S&P 500 is 12.6% lower and the NASDAQ is just within bear market territory, down 20.5%.
Not a single sector was negative in July. The cyclical sectors of Consumer Discretionary and Technology scored big wins in July, rising 18.4% and 13.5% respectively. Behind them was a 9.7% gain made by Energy and 9.5% by Industrials. Reports that the Federal Reserve may slow or even end its current rate hike cycle were primarily responsible for sending these rate-sensitive sectors higher. Defensive sectors got a lift as well—both Health Care and Consumer Staples were up 3.2% in July.
Inflation surpassed the 9% mark for the first time since 1981, clocking in at 9.06% last month. Adding to the broader economic picture was Q2 GDP data—the US Economy contracted for the second consecutive quarter and therefore fit the technical definition of a recession. In housing, both new and existing home sales declined significantly while the supply level of existing homes rose to its highest level in two years. Finally, data on the employment front showed the unemployment rate remained unchanged at 3.6% for a fourth consecutive month, but the labor force participation rate is still struggling to reclaim its pre-pandemic high set in February 2020.
The US treasury yield curve inverted across multiple spreads as of the end of July. Rates on the 1-Year and 6-Month T-Bills were higher than those on the 2-Year, 3-Year, 5-Year and 10-Year Notes. These two short-term instruments also topped 3% for the first time since January of 2008, continuing their rapid rise as the Federal Reserve hikes its key interest rate at a historic pace. Finally, July saw long-term interest rates decline in several regions across the globe, in addition to North America.
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