The global equity markets ended July with a small gain largely resulting from strength in the United States. European markets broadly sold off as did Asian markets with the exception of Japan and Australia. Returns in local currencies were stronger, but US dollar strength erased those gains, most notably in the United Kingdom.
The dominant themes of the past few months remained in place as optimism over an interest rate cut by the Federal Reserve (realized on 31 July) and progress on the China-US trade war overcame weaker economic news in Europe and Asia. The election of Boris Johnson significantly increased the prospect of a hard Brexit, deflating hope in the manufacturing sector and sending sterling to new lows. Emerging markets underperformed again as the weakening global outlook pressured Asian markets. The outlook also impacted oil prices, which declined further from April. Interest rates also fell modestly in the month. US consumer demand stayed healthy, countering the flagging business outlook. Through the beginning of the quarterly reporting period, earnings have shown a modest decline with weaker guidance driven by the macro uncertainty. Technology stocks led the market in the month. Health care stocks rebounded in July but remain one of the weakest sectors for the year. Otherwise, more defensive names performed well, with consumer staples, utilities, and communication services posting positive returns in the month.
Factor performance reflected investor defensiveness with low risk and higher financial quality companies outperforming. Value measures, especially cyclical ratios (P/B), were weak throughout the developed markets but outperformed in emerging markets. Companies viewed as defensive (low P/E) outperformed, particularly in the United States and Japan. Price momentum enjoyed one of its stronger months, working well around the world. By contrast, stocks with analysts’ upgrades underperformed. Growth measures fared well in Europe but were mixed in the United States and emerging markets.
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