Bad News was Good News for Markets in July

By Megan Horneman. © Verdence Capital Advisors

Key Takeaways:

  • Markets rebound despite grim macroeconomic headwinds.
  • GDP contracts for second consecutive quarter; common indicator of recession.
  • Those equity areas most beaten down see solid rally.
  • Yield curve inverts to 20+ year low.
  • Commodities driven higher by natural gas but crude oil slips.

The macroeconomic environment remained grim in July as stubbornly high inflation persisted. The first reading of 2Q22 U.S. GDP showed the economy entered a technical recession, and the Federal Reserve raised interest rates by another 75bps. Broad asset classes, however, seemed to follow the “bad news is good news” mantra, posting their best monthly performance for the year. Bonds rallied during the month as investors grew more concerned with the economic outlook than inflation. Commodities also posted strong gains, as natural gas prices surged on supply concerns from Russia.

Inflation remains stubbornly high: Headline CPI inflation increased at its fastest pace since December 1981 in July. PCE core, the Federal Reserve’s preferred inflation gauge, increased slightly compared to May’s reading.

Labor market still resilient: The labor market remains resilient adding more jobs than expected and the unemployment rate is at the lowest level since February 2020.

Manufacturing slows but remains expansionary: Manufacturing slowed in July but remains in expansionary territory.

Housing struggles continue: The jump in mortgage rates continues to hamper housing with the NAHB Homebuilder Sentiment Index falling to the lowest level since May 2020.

Global Equities: The MSCI AC World Index posted its best monthly performance since November 2020 in July led by gains in the U.S.

Growth and tech rebound: The Russell 3000 Growth Index outperformed the 3000 Value Index by over 500 bps. Technology led the gains with the NASDAQ posting its best monthly gain since April 2020.

Small-caps rebound sharply: Small- caps, as tracked by the Russell 2000, rose the most since November 2020 as the areas of the market that have been hit the hardest rebounded.

Developed international outperform EM: Europe and Japan (MSCI EAFE) rallied despite an aggressive tone from the ECB.

Fixed Income: The Bloomberg Barclays Aggregate saw its best performance since August 2019 as growth fears overshadowed high inflation.

Yield curve signals recession: The yield curve (10YR – 2YR Treasury yield), a traditional inflation indicator, inverted and has dropped to levels not seen since September 2000.

Credit surges: An increase in risk appetite spilled into fixed income with high yield credit posting its best one-month gain since October 2011.

Commodities: The Bloomberg Commodity Index was led higher by energy which posted its best one month gain in three months.

Energy higher on surge in natural gas: Natural gas prices jumped more than 50% in July as Russia cut natural gas exports in the Nord stream pipeline to Europe.

Prices at the pump are coming down: Crude oil posted its second straight month of losses on fears of a global economic slowdown. As a result, gasoline prices fell the most since March 2020.


This material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice. 

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