July 2023 | Global Equity Markets Review

The market followed a strong June with further gains in July. The S&P 500 Index total return was 3.21%, while the S&P 400 Mid Cap and S&P 600 Small Cap returns were 4.13% and 5.51%, respectively. Major market indexes hit their July highs on the last day of the month, with 14 of the 20 trading days in the S&P 1500 Composite ending higher. All eleven major economic sectors rose during the month, with cyclical sectors easily outpacing less cyclical sectors. Market breadth was strong, with almost 75% of the stocks in the S&P 1500 ending the month higher, only slightly below June's strong month. The value style beat growth last month, particularly in the mid cap and small cap benchmarks.

With the most anticipated recession of all times having been avoided, for now anyhow, investors have become more optimistic about the outlook for corporate earnings. Following a strong rebound from the pandemic lows, index earnings per share have risen to record levels and are well above a 20-year trend. Concerns about the outlook are justified, as even a mild recessionary environment can hit earnings hard from an elevated profit level. The graph below highlights the relationship between the S&P 500 Index and two earnings measures, one using actual trailing 12-month earnings per share and one using estimated 12-month forward earnings per share from Wall Street analysts.

Estimated earnings are now 20% above actual earnings and estimates are based upon the assumption that we’ll avoid a recession through the first half of 2024. We caution against the ebullience reflected in lofty valuations for many large cap stocks. The past several years have seen a very unusual set of economic circumstances, with previously predictable indicators of future economic activity distorted by the pandemic response from monetary and fiscal authorities. All eyes are glued on 2nd quarter reports and accompanying commentary from management on the outlook for sales and earnings for the rest of 2023 and 2024. The chart below illustrates that after a rocky start to the reports, estimates for the 2nd quarter are back to levels at the beginning of July. It is encouraging to see that forward earnings estimates are holding steady by month's end. The companies yet to report make up more than 40% of the total market cap of the S&P 500 and could significantly impact estimates for the remainder of this year and increasingly provide a glimpse into 2024.

International equity markets took the lead over U.S. markets in July. The S&P Global BMI ex-U.S. return was 4.25%. The S&P Developed BMI ex-U.S. Index and S&P Emerging Markets Index generated returns during the month of 3.62% and 6.15%, respectively. The dollar declined for the second consecutive month by 1.03% in June, supporting international markets. In a shift from last month, when global returns were led by large U.S. technology companies, broad participation from non-technology cyclical companies led the markets higher in July. That shift, combined with a lower dollar, provides fertile ground for the outperformance of international bourses. It is too early to declare a sustainable shift in market leadership, but the valuations of international markets today are far more compelling than those in the U.S., particularly in the large cap growth sector.

Notes & Disclosures

Index Returns – all shown in US dollars

All returns shown trailing 7/31/2023 for the period indicated. “YTD” refers to the total return as of prior-year end, while the other returns are annualized. 3-month and annualized returns are shown for:

• The S&P 500 index is comprised of large capitalized companies across many sectors and is generally regarded as representative of US stock market and is provided in this presentation in that regard only.
• The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance. The S&P 500 equal-weight index (S&P 500 EWI) series imposes equal weights on the index constituents included in the S&P 500 that are classified in the respective GICS® sector.
• The S&P 500 Growth Index is comprised of equities from the S&P 500 that exhibit strong growth characteristics and is weighted by market-capitalization.
• The S&P 500 Value Index is a market-capitalization weighted index comprising of equities from the S&P 500 that exhibit strong value characteristics such as book value to price ratio, cash flow to price ratio, sales to price ratio, and dividend yield.
• The Russell 3000 Index tracks the performance of 3000 U.S. corporations, determined by market-capitalization, and represents 98% of the investable equity market in the United States.
• The Russell Mid Cap Index measures the mid-cap segment performance of the U.S. equity market and is comprised of approximately 800 of the smallest securities based on current index membership and their market capitalization.
• The Russell 2000 Index is a market-capitalization weighted index that measures the performance of 2000 small-cap and mid-cap securities. The index was formulated to give investors an unbiased collection of the smallest tradable equities still meeting exchange listing requirements.
• The MSCI All Country World Index provides a measure of performance for the equity market throughout the world and is a free float-adjusted market capitalization weighted index.
• The MSCI EAFE Index is a market-capitalization weighted index and tracks the performance of small to large-cap equities in developed markets of Europe, Australasia, and the Far East.
• The MSCI Emerging Markets Index is a float-adjusted market-capitalization index that measures equity market performance in global emerging markets and cannot be purchased directly by investors.
• The S&P Global BMI sector indices are into sectors as defined by the widely used Global Industry Classification Standards (GICS) classifications. Each sector index comprises those companies included in the S&P Global BMI that are classified as members of respective GICS® sector. The S&P Global BMI Indices were introduced to provide a comprehensive benchmarking system for global equity investors. The S&P Global BMI is comprised of the S&P Emerging BMI and the S&P Developed BMI. It covers approximately 10,000 companies in 46 countries. To be considered for inclusion in the index, all listed stocks within the constituent country must have a float market capitalization of at least $100 million. For a country to be admitted, it must be politically stable and have legal property rights and procedures, among other criteria.
• The Barclay’s US Aggregate Index, a broad-based unmanaged bond index that is generally considered to be representative of the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
• The Bloomberg Barclay’s US Corporate High Yield Index, which covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market.

An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.

Key Indicators

Key Indicators correspond to various macro-economic and rate-related data points that we consider impactful to equity markets.

• The US 10-Year Treasury Yield (%)/bps, is the return on investment for the U.S. government’s 10-year debt obligation and serves as a signal for investor confidence.
• SPDR Gold Trust Price ($), is an investment fund that reflects the performance on the price of a gold bullion, less the Trust’s expenses.
• West Texas Intermediate, which is an oil benchmark and the underlying asset in the New York Mercantile Exchange’s oil futures contract.
• CBOE Volatility Index (Level)/% Change, which uses price options on the S&P 500 to estimate the market's expectation of 30-day volatility.

General Disclosure

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