July has historically been the best month of the year for stock market performance, and this July was true to form. We saw the majority of Q2 earnings reports during the month, but we also saw a flair up in COVID cases as the Delta variance of the virus attacked mostly the unvaccinated. Corporate earnings reports were expected to be spectacular, and they have generally been that and more, but the lofty valuations and uncertainty of what impact, if any, the resurging virus might have on the economy kept stocks from moving dramatically higher, but the S&P 500 did gain ground for a 6th consecutive month. At the end of the month, the S&P 500 had added another 2.3% and is now 17% higher for the year. Oil prices were fractionally higher for the month, and gold gained 2.2%.
The market tends to rally ahead of a 3-day weekend, and the month began with a nice rally on both July 1st and 2nd as we went into the Independence Day weekend. We learned another 850,000 jobs were reclaimed during May, and first-time claims for unemployment benefits dropped to a post-pandemic low. The S&P 500 rallied again on the day after the holiday, moving higher for 7 straight days for the first time since August of 2020. Mid-week the market dipped on disappointing economic numbers and news that Tokyo declared a state of emergency and the Olympics would be without spectators.
At week’s end, a strong rally sent the S&P 500 to a new all-time high. The first 7 trading days ended with the S&P 500 +1.7%. The 2nd full week was the only down week in July as concerns about the Delta variant slowing down the economic recovery weighed on the market. It was a flat week until a last-day decline sent the S&P 500 down 1% for the week. The 3rd week was very interesting as it started with a nearly 1000-point decline for the Dow and ended with all major indices at new all-time highs.
The early selling was related to Delta variance concerns and the rally at week’s end was investors deciding those concerns were not going to have a lasting impact on the recovery. At the end of the week, the S&P 500 had reversed nearly 4% intraweek and ended 2% higher. The last week of the month was the busiest week for earnings reports this quarter. The Chinese corporate crackdown gained strength early in the week, but by the week’s end, it was mostly forgotten. Our government reported Q2 GDP was an annualized 6.5%, which was well short of the 8.4% expectations, but the market shrugged it off as yesterday’s news. Amazon reported disappointing results at month-end that weighed on the indices, and for the week, the S&P 500 ended fractionally lower.
August has been a slightly below-average month, historically gaining .6% and ending higher 57% of the time. We expect the Delta variant to play a large role in stock market movement during the month. If the infections continue to grow and mask policies and/or social distancing return, that will weigh on the market. Over the past week, we have seen a noticeable decline in new cases in England, and we have often followed them. If cases start to decline here, we expect the market to react favorably.
We are enjoying some of the strongest economic growth in our history, and stock prices have responded by moving to valuation levels that are above historical norms. A 5% to 10% pullback is overdue, but strong economic growth is likely for the remainder of this year, and with the huge amount of money being pumped into the economy by the Fed, we would be buyers of any tradeable dips.
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