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MONTHLY MARKET REPORT: JULY 2019
Trade Uncertainty Rattles Markets
Prepared by Brandon Yee, CFA, CAIA, and Thomas Connelly, CFA, CFP®[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4231″][/vc_column][vc_column width=”5/6″][vc_column_text]Developed Markets Take a Step Back
In the month of July, international developed stock markets dropped 1.21%. The U.S and Japanese markets had modest gains of 1.51% and 0.14%, respectively. Europe ex UK and the UK dropped 1.99% and 1.80%, respectively. Year to date returns are still sizable across the board, overturning much of 2018’s losses. Trade uncertainty remains a downside risk for equities.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”5059″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4237″][/vc_column][vc_column width=”5/6″][vc_column_text]Brazil and Russia Outperforming in 2019
Broader emerging markets declined by 0.55% for the month. Brazil and Russia recorded gains of 2.55% and 0.29%, respectively. Korea lagged other markets in July, dropping 6.18%. Emerging markets have gained 11.12% year to date, but still trade at attractive valuations relative to the U.S. market.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”5060″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4234″][/vc_column][vc_column width=”5/6″][vc_column_text]Telecommunications and IT Have Strong Month
Telecommunications and information technology recorded gains of 2.44% and 2.43%, respectively. Energy and materials lagged other sectors, posting losses of 3.09% and 2.71%, respectively. Much of this bull market’s return has been driven by technology and consumer discretionary companies. Investors should not extrapolate these returns, especially given the business cycle is in the late stages.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”5058″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4232″][/vc_column][vc_column width=”5/6″][vc_column_text]Value underperforms Growth
In July, value underperformed growth in the large-cap and small-cap space. Momentum recorded a gain of 2.74%. Historically, different equity factors have their own periods of outperformance, usually in shorter time periods but sometimes lasting a decade. However, tilting portfolios to capture more of the value and size premium has historically compensated investors in the long run.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”5065″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4233″][/vc_column][vc_column width=”5/6″][vc_column_text]Investors Bidding Up Growth Companies
In the international developed markets, value underperformed growth. Momentum recorded a loss of 0.68% while small-cap emerging market stocks dropped 1.32%. Growth investors continue to be rewarded; however, this outperformance is coming primarily from higher valuation multiples as opposed to earnings growth.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”5066″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4236″][/vc_column][vc_column width=”5/6″][vc_column_text]The Fed Cut Rates
The Fed cut rates by 0.25% in July. The drop in rates will affect savers; however, with the U.S. equity market trading at a high valuation and fixed income spreads low, investors can still earn a competitive risk-adjusted rate of return. Investors can earn a similar annual rate on cash versus those of intermediate-term bonds. The CPI increased by 1.66% year over year through June.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”5063″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4230″][/vc_column][vc_column width=”5/6″][vc_column_text]Bonds Provide Diversification in July
The returns of deflationary hedges were primarily positive for the month. Emerging market bonds led the way, returning 1.15%. The Barclays U.S. Agg Bond Index was up 0.22%. Emerging market bonds are off to a strong 2019, returning 11.87% year to date. Emerging market debt may warrant a higher portfolio allocation if developed market growth continues to slow and their high debt levels become burdensome.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”5064″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4235″][/vc_column][vc_column width=”5/6″][vc_column_text]Gold Outperforming Over Past Year
Inflation-sensitive investment returns were mixed for the month. Foreign inflation-indexed bonds and U.S. real estate recorded gains of 2.97% and 1.60%, respectively. Gold bullion posted modest gains. Over the past year, gold has outperformed other inflation-sensitive investments. Given its favorable supply/demand dynamics and role as a hedge against late cycle risks, gold merits an allocation in clients’ portfolios.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”5061″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4238″][/vc_column][vc_column width=”5/6″][vc_column_text]U.S. Dollar Strengthens Against British Pound and Chinese Yuan
Over the past three months, the U.S. dollar appreciated against the British Pound and Chinese Yuan by 6.92% and 2.18, respectively. Relative to the U.S. dollar, the Swiss Franc and Japanese Yen appreciated by 2.81% and 2.68%, respectively, over the past three months. For international equity investors, a weakening U.S. dollar will provide a tailwind to returns.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”5062″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Brandon Yee, CFA, CAIA – Research Analyst
Brandon conducts investment due diligence for Versant Capital Management, and designs and implements tools and processes to support the firm’s research. His background in biology and finance help him to look at challenges from multiple angles, resulting in unique and well-rounded approaches and solutions.
Disclosure: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Versant Capital Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from Versant Capital Management, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Versant Capital Management, Inc. is neither a law firm nor a certified public accounting firm and no portion of the article content should be construed as legal or accounting advice. If you are a Versant Capital Management, Inc. client, please remember to contact Versant Capital Management, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Versant Capital Management, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.[/vc_column_text][/vc_column][/vc_row]
