Kai W. Hong, CFA
Managing Partner & Chief Investment Strategist

After several months of modest gains shadowed by questions over potential central bank tightening, investors interpreted US Fed Chair Yellen’s testimony to Congress as somewhat more “dovish” on the outlook for inflation and the pace of further monetary policy action. The European Central Bank was more reticent, but EU officials tried to calm concerns regarding potential reduction in accommodation. On the corporate front, earnings growth continued to impress and mergers and acquisition activity remained robust. Global manufacturing indicators were generally positive, and China’s Q2 GDP of +6.9% exceeded most forecasts, giving a boost to many other emerging Asian economies as well. On the geopolitical scene, US politics continued to be roiled with each new revelation – a meeting in Trump Tower with Russian nationals, potential investigations into Trump finances, more personnel turnover at the White House, uncertainty over the fate of US health care legislation. Meanwhile, tensions over North Korea increased with bombast coming from both sides.

At the end of all of this, the Russell 3000 Index finished the month at +1.9%. All sectors were positive for July with Technology and Utilities as the leaders for the month. US small cap stocks underperformed large caps with the Russell 2000 Index returning +0.7% and the Russell 1000 Index returning +2.0%. Outside of the US, market performance was much stronger as weakness in the US dollar boosted the USD-denominated returns of the developed market MSCI World ex USA Index to +3.0% and the developing market MSCI Emerging Markets Index to +6.0%.