Monthly Market Update for July 2021

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Please find the next blog in our monthly series that provides a review of the prior month’s market data, the state of the economy, and the global financial markets.

Global Economy:

The spread of the Delta variant led to renewed concerns around Covid in July, with equity returns mixed and volatility higher despite a strong beginning to 2nd quarter earnings results and positive economic data. US GDP data underwhelmed given high expectations, but growth was still robust and GDP has surpassed pre-pandemic levels. US inflation continues to run higher than expected but is still viewed by the Fed as transitory. Nonetheless the Fed’s tone has shifted to be moderately more hawkish in recent meetings. Covid-19 cases are on the rise both in the US and worldwide as the highly contagious Delta variant becomes the dominant strain. Markets will remain susceptible to pullbacks as governments continue to deal with new variants and the possibility of new restrictions is a risk for global growth, but many regions are learning to navigate the coronavirus without the large-scale restrictions of the early-pandemic.

The Federal Open Market Committee met in July but did not change policy rates, a widely expected outcome. The timing of the tapering of asset purchases is increasingly a subject of debate, and the meeting statement acknowledged the economy “has made progress” toward the committee’s goals but “the Committee will continue to assess progress in coming meetings.” Analysts generally expect tapering to commence in late 2021 or early 2022, but for now the Fed continues to expand its balance sheet by at least $120 billion a month.

The first estimate of 2Q-21 real GDP indicated the US GDP expanded at a rate of 6.5% annualized. This was somewhat lower than consensus estimates of 8.5% but was still enough to push GDP above its pre-Covid peak. The increase was largely due to increasing personal expenditures, which rose 11.8%. Nonresidential fixed investment, exports, and state and local government spending also contributed. The Atlanta Fed’s quantitative GDP model currently forecasts continued robust growth of 6.0% in 3Q-21, in-line with analysts’ consensus estimates which range from 5% – 9%.

Weekly initial unemployment claims continue to hover around 400,000 as the highly contagious Delta variant threatens to slow the return of workers to the labor market. For the month, 943,000 jobs were added for the largest gain in 11 months. June payrolls were revised up significantly as well, and unemployment dropped 0.5 ppt to 5.4%. Core CPI rose again to +4.5% as base effects appear to be peaking and rising demand continues to collide with supply chain issues. Core PCE also rose to +3.5% year-over-year through June.

Global Markets:

Returns for major equity indices were mixed in July. US large caps and Non-US Developed were up, and US small caps and Emerging Markets were down as concerns over the Delta variant and signs of peaking growth weighed on risk appetite. The S&P 500, which represents large US-based entities, returned +2.4% for the month. Health Care (+4.7%) Real Estate(+4.6%), and Utilities(+4.2%) were the strongest performers with most sectors positive. Energy (-8.4%) was a notable laggard as it was hit hardest by growth concerns. The Russell 2000, representing small cap stocks, returned -3.6% in July. Utilities (+2.6%) and Real Estate (+1.8%) outperformed, with the rest of the sectors negative on the month. Energy (-12.8%), Communication Services (-12.5%), and Health Care (-7.02%) all lagged. Style performance was mixed, with large cap value lagging growth and small cap performance consistent across styles in July.

In the broad international developed markets, the MSCI EAFE index returned +0.8% for the month. At the sector level, Materials (+3.7%), Information Technology (+3.2%), and Industrials (+2.0%) were the top performers while Energy (-3.3%), Communication Services (-3.3), and Consumer Staples (-0.3%) lagged. Among developed countries, Finland (+5.9%), Israel (+4.9), and Denmark (+4.9%) were the top performers while Hong Kong (-2.9%), Belgium (-2.0%), and Norway (-1.8%) lagged. Most countries posted modest gains, as an accelerating vaccine rollout in the developed world allayed some fears of renewed restrictions.

Emerging market stocks, as represented by the MSCI Emerging Markets index, lagged with a return of -6.7%. The segment was dragged down by low vaccination rates amid the rise in Covid cases, as well as announcements of tighter regulations in China which triggered sharp declines. At the country level, Egypt (+7.0%), Turkey (+6.6%), and Argentina (+6.4%) outperformed while China (-13.8%) was a notable laggard at 35% of the index.

Real estate, as measured by the FTSE EPRA/NAREIT Developed index, outperformed equities with a +3.9% return. The energy-related Alerian MLP performed in-line with Energy sector equity at -6.3%, while the near-month NYMEX oil returned 0.7%. Gold was up 2.3% but is still off -4.4% YTD, while the diversified Bloomberg Commodity index was up 1.8% to push YTD returns to 23.4%.

US Treasury yields continued to fall in July with a flatter curve. The 10-yr yield dropped 25 bps to 1.22% and the 10’s minus 2’s curve flattened 18 bps. The overall UST complex returned +1.6% for the month, lifting trailing one-year returns to -3.0%. Globally, developed market yields were generally lower with flatter curves, as long term-yields fell due to Covid-driven growth concerns. The global stock of negative yielding debt rose substantially to $16.3 trillion from $13.4 trillion.

The BloomBar US Aggregate Bond index underperformed risk-free US Treasuries on an absolute and duration-matched basis with a return of +1.1% in July. Underperformance relative to treasuries was broad based for the index, as spreads widened modestly across investment grade sectors due to uncertainty caused by the spread of the delta variant. However, sector returns were generally positive in July, and the benchmark’s yield-to-worst fell 14 bps to 1.36%.

The BloomBar 1-15-Year Municipal index returned +0.7% in July. Demand remains supportive, with YTD inflows to municipal funds that would already qualify as the third highest full year amount. Demand combined with relatively light supply to produce a favorable technical tailwind in the month. A bipartisan agreement was reached on the long-discussed infrastructure bill in late July that is expected to advance a vote in August. This plan would provide $548B of new spending over five years on infrastructure needs but also lacks some provisions favored by muni participants like the inclusion of direct-pay bonds (like the Build America Bonds of 2009) or the reinstatement of advance refunding.

The BloomBar US Corporate High Yield index returned +0.4% for the month. High-yield spreads widened 26 bps to 294 bps, which still leaves the sector 66 bps tighter YTD. The benchmark yield rose 13 bps off the all-time low it hit last month to end at 3.88%. The TTM default rate is expected to have fallen to 1.4% by the end of July, the lowest level since March 2014. Emerging Market debt underperformed other fixed income sectors amid the month’s modest decline in risk appetite, as concerns over the impact of the Delta variant led to EM spread widening.


The views expressed herein are those of Asset Consulting Group (ACG). They are subject to change at any time. This report was prepared by ACG for you at your request. Although the information presented herein has been obtained from and is based upon sources ACG believes to be reliable, no representation or warranty, express or implied, is made as to the accuracy or completeness of that information. Accordingly, ACG does not itself endorse or guarantee, and does not itself assume liability whatsoever for, the accuracy or reliability of any third party data or the financial information contained herein. Certain information herein constitutes forward-looking statements, which can be identified by the use of terms such as “may”, “will”, “expect”, “anticipate”, “project”, “estimate”, or any variations thereof. As a result of various uncertainties and actual events, including those discussed herein, actual results or performance of a particular investment strategy may differ materially from those reflected or contemplated in such forward-looking statements. As a result, you should not rely on such forward-looking statements in making investment decisions. ACG has no duty to update or amend such forward-looking statements. The information presented herein is for informational purposes only and is not intended as an offer to sell or the solicitation of an offer to purchase a security.

Please be aware that there are inherent limitations to all financial models, including Monte Carlo Simulations. Monte Carlo Simulations are a tool used to analyze a range of possible outcomes and assist in making educated asset allocation decisions. Monte Carlo Simulations cannot predict the future or eliminate investment risk. The output of the Monte Carlo Simulation is based on ACG’s capital market assumptions that are derived from proprietary models based upon well-recognized financial principles and reasonable estimates about relevant future market conditions. Capital market assumptions based on other models or different estimates may yield different results. ACG expressly disclaims any responsibility for (i) the accuracy of the simulated probability distributions or the assumptions used in deriving the probability distributions, (ii) any errors or omissions in computing or disseminating the probability distributions and (iii) and any reliance on or uses to which the probability distributions are put. The projections or other information generated by ACG regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Judgments and approximations are a necessary and integral part of constructing projected returns. Any estimate of what could have been an investment strategy’s performance is likely to differ from what the strategy would actually have yielded had it been in existence during the relevant period. The source and use of data and the arithmetic operations used for calculating projected returns may be incorrect, inappropriate, flawed or otherwise deficient.

Past performance is not indicative of future results. Given the inherent volatility of the securities markets, you should not assume that your investments will experience returns comparable to those shown in the analysis contained in this report. For example, market and economic conditions may change in the future producing materially different results than those shown included in the analysis contained in this report. Any comparison to an index is for comparative purposes only. An investment cannot be made directly into an index. Indices are unmanaged and do not reflect the deduction of advisory fees. This report is distributed with the understanding that it is not rendering accounting, legal or tax advice. Please consult your legal or tax advisor concerning such matters. No assurance can be given that the investment objectives described herein will be achieved and investment results may vary substantially on a quarterly, annual or other periodic basis. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

Gryphon Financial Partners shall not in any way be liable for claims and make no expressed or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in or omissions from them. This was created for informational purposes only. Gryphon Financial Partners, LLC is an Investment Adviser.

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