Research & Insights

July 2018

July 2018

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

July saw strong performance across most equity markets as concerns over the negative impact of trade wars subsided temporarily. The Russell 3000 Index finished the month with a return of +3.3%. Large cap stocks returned to the fore with the Russell 1000 Index returning +3.5% versus the Russell 2000 Index returning +1.7%. A pause in the rise of the US dollar was helpful to non-US market returns. The developed market MSCI World ex USA Index returned +2.5%, and the developing market MSCI Emerging Markets Index returned +2.2%. Fixed income markets were muted with the Bloomberg Barclays US Aggregate returning +0.0%.

At the Sector level in the US, Producer Durables (+6.1%) and Health Care (+5.9%) were the top performing sectors for the month. Materials (+3.6%), Consumer Staples (+3.5%), and Financials (+3.4%) were also strong performers. While all sectors were positive, Energy (+1.1%) and Consumer Discretionary (+1.1%) were relative laggards.

Outside of the US, Health Care (+4.5%), Utilities (+3.8%), and Financials (+3.5%) led. As in the US, all sectors were positive but Consumer Discretionary (+0.2%) and Technology (+0.5%) were only modestly so. At the country level, emerging markets again dominated the top and bottom performers. Brazil (+11.7%) and Poland (+11.5%) led while Turkey (-7.4%) and China (-2.1%) lagged.

Market volatility remained low as realized and implied volatility measures stayed at the low end of their historical ranges. Trade volumes fell off substantially as many investors remained on the sidelines in the wake of trade and economic uncertainty. At the factor level, Value and Low Volatility were positive while Smaller Size, Quality, and Momentum were modest negatives. Equal-weighted portfolios underperformed market-cap weighted portfolios as market leadership continued to be somewhat concentrated.