5 min read
Global equities posted generally positive returns in July, though some were more muted than others. Interest rate rises continued in the US, UK, and eurozone but central banks have suggested that they may be approaching the peak of the rate rises in the coming months.
Inflation fell in most developed nations, a sign that the rate rises have begun to have their intended effect.
Whilst this article focuses in the main on July 2023 market news, there are references to events and market performance from previous months.
US
The Federal Reserve resumed its interest rate hikes in July after pausing in June, raising the key policy rate by 0.25% and taking the Fed funds rate to 5.25-5.5%1. Fed chair Jerome Powell explained that any future rate hikes would be based on data, of which there will be plenty by the next meeting in September1.
The headline inflation rate including food and energy was 3% year-on-year in June; this is the lowest recorded rate since March 2021 and down from 3.8% in May2.
The likelihood of a recession in the US fell in July as data revealed that Gross Domestic Product (GDP) grew at a pace of 2.4% during Q23. This was ahead of the Dow Jones predictions which suggested GDP would grow at a pace of 2% for that period3.
On the stock markets, the S&P 500 was up by 3.11% for July, and its year-to-date (YTD) returns reached 19.52%4. Indeed, all 11 sectors of the S&P 500 logged gains during June and July5. The Dow Jones Industrial Average grew by 3.35% for the month, with a YTD return of 7.28%4.
UK
The Office for National Statistics reported that inflation fell to 7.9% year-on-year in June, down from 8.7% in May6. The fall was bigger than anticipated, as economists expected inflation to remain above 8% for June6. It’s thought that the lower price of motor oil caused the drop6.
After the Bank of England raised rates by 0.5% in June to 5%, with a further increase to 5.25% announced on August 3rd, economists predicted that the peak of the rate rises would be 6.5%7. But the larger-than-expected fall in inflation caused them to scale back these predictions to around 5.75%7.
On the stock market, the FTSE 100 had a volatile month. It experienced its lowest-closing day since March on 6 July8, quickly followed by its biggest one-day jump of the year on 12 July, gaining 1.83%9. The FTSE All-Share returned 2.6% for the month, lagging behind some other developed markets including the S&P 50010.
Europe
The European Central Bank raised its main interest rate by 0.25% in July, taking it to 3.75%11.
The governing council explained that data points to the fact that even though inflation is falling, it is set to remain “too high for too long”12. The decision to raise rates was based on their commitment to bringing inflation down to its 2% target12.
Figures released in July suggest that economic growth was marginally higher than expected during Q2; GDP increased by 0.3%, above the estimate of 0.2%13.
Economists have suggested that the figure was largely influenced by Ireland and France, which posted GDP growth of 3.3% and 0.5% respectively13. Consequently, economists believe that the eurozone economy is still likely to experience a recession13.
The pan-European STOXX 600 gained 2% in July, its second consecutive month of growth14. The MSCI Europe ex-UK gained a modest 1.3% for July, while its YTD returns sat at 15.3%15.
Asia
In Japan, manufacturing output fell in July. Despite this, supported by the services sector, GDP grew by 2%16.
The Tokyo Core Consumer Prices Index rose by 3% year-on-year in July17. This was a drop from June’s figure of 3.2% but still above the Bank of Japan’s 2% target, adding to the pressure on policymakers to address the country’s monetary policy17.
China’s GDP grew by 6.3% year-on-year in Q218. It grew by just 0.8% quarter-on-quarter, a significant drop from the 2.2% quarter-on-quarter growth recorded in Q118. This has prompted calls for more economic stimulus from policymakers to increase activity19.
The Japan TOPIX made modest gains in July of 1.5%20. Despite the economic pressures in China, the MSCI Asia ex-Japan returned 6.2% for the month and 9.6% YTD10.
What this means for you
It was good news for equities in July as most stock markets ended the month with gains, but these figures only form part of the picture. When you invest your wealth to work towards a long-term goal, it’s likely that you’ll invest in a range of asset classes including equities, property, fixed-income bonds, and cash.
By building a portfolio that is diversified according to your personal risk profile, investments that outperform could make up for any that perform less well. So, while it can feel exciting to start investing your money in the great companies of the world through equities, remember that other asset classes might have a place in your portfolio.
By working with your financial planner to decide on the most suitable asset classes and distribution for you, you can feel confident in your ability to aim to achieve your long-term financial goals.
Sources
1. 26/07/23 | July 2023 Fed Meeting: Interest Rate Hikes Resume | J.P. Morgan
2. 28/07/23 | Key Fed inflation rate falls to lowest annual level in nearly 2 years | CNBC
3. 27/07/23 |GDP grew at a 2.4% pace in the second quarter, topping expectations despite recession calls | CNBC
4. 02/08/23 | U.S. Equities Market Attributes July 2023 | S&P Dow Jones Indices
5. 31/07/23 | The 2023 stock market rally got a lot healthier in June and July | Yahoo Finance
6. 27/07/23 Economic update: Inflation continues to fall as earnings growth rises| House of Commons Library
7. 25/07/23 | Bank of England rates set to peak at 5.75% by year-end: Reuters poll | Reuters
8. 06/07/23 | FTSE 100 hits lowest closing level of 2023 as interest rate rise fears grip markets – business live | Guardian
9. 12/07/23 | FTSE 100 marks best day of 2023 as US inflation falls to 3% | Guardian
10. 01/08/23 | Monthly Market Review | J.P. Morgan
11. 27/07/23 | European Central Bank raises rates by a quarter percentage point, says inflation set to remain ‘too high for too long’ | CNBC
12. 27.07.23 | Monetary policy decisions | European Central Bank
13. 31/07/23 | Euro zone economy shows resilience as second-quarter GDP beats expectation, inflation slips | CNBC
14. 31/07/23 | European stocks rise on cooling inflation, healthcare boost | Reuters
15. 1/08/23 | Monthly Market Review | J.P. Morgan
16. 24/07/23 | Japan's economic growth sustains in July though price pressures and outlook worsen | S&P Global
17. 28/07/23 | Inflation in Japan's capital slows in July, stays above BOJ target | Reuters
18. 17/07/23 | More stimulus ‘desperately’ needed as China’s economic recovery slows further CNN
19. 17/07/23 | China's frail Q2 GDP growth raises urgency for more policy support | Reuters
20. 3/08/23 | Monthly markets review - July 2023 | Schroders
Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.
The content of this guide was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the guide.
FP2023-311