As we approach the end of what has been one of the warmest summers in recent memory, we trust that you are doing well. We hope that everyone has had the chance to spend quality time with loved ones or make the most of the remaining weeks. In July, our family embarked on several trips, perhaps too many, which left us feeling both exhausted and eager to return to the comfort of home. While I appreciate the excitement of travel and the unpredictability of living out of a suitcase, I find solace in the familiarity of daily routines. Just as the excessive travel induced a sense of restlessness in me, the market's volatility in July evoked similar feelings of anxiety among investors.
Throughout this year, I have consistently emphasized in my monthly updates that volatility would need to emerge for the economy and the world to gradually return to a state of normalcy. July started off similarly to previous months, with the release of CPI (inflation) data for June. This data confirmed the easing economic pressures that have prevented the Federal Reserve from implementing its first rate cut of the year. However, as we delved into company earnings reports, the initial belief of an "easing" economy transformed into concerns that the Fed's position might actually be "stalling" the economy. These concerns prompted some significant shifts and rebalancing, with key market leaders of the year such as Microsoft, Apple, Nvidia, and Amazon to experience a decline in confidence for the first time in a considerable period.
In July, we observed a familiar seasonal market trend resembling that of August/September over the past 3 or 4 years. During this period, market leaders temporarily step back to make way for historically low volatility sectors like Real Estate, Financials, Industrials, and Utilities. This shift in the market dynamics resulted in the Dow Jones rising and the S&P 500 closing the month with a gain of +1.13%, while the technology-heavy Nasdaq Index ended the month with a decline of -0.75%. Reflecting the volatility in the market, the Real Estate sector led with a gain of +7.24%, whereas the technology sector closed the month with a loss of -3.29%.
In the past 15 years, whenever volatility emerges in the market, discussions and news coverage tend to focus on recession concerns and negative economic outlooks. It is important to remember that these turbulent times often present valuable long-term opportunities for patient investors. We believe that the current seasonal downturn will subside, corporate profits will remain resilient, and with anticipated interest rate cuts later this year, the market's upward trend will resume. As we navigate through this seasonal phase once more, it is worth noting that market downturns of over ten percent have occurred in approximately two-thirds of all years since 1928, making some level of volatility more expected than surprising.
Comments