July 2023 Monthly Commentary

Greetings Team!

If “Barbenheimer” and Swift’s Eras Tour is any indication, the US is clearly avoiding its second recession in two years. The consumer is not slowing down! The “soft landing” scenario took hold during the month of July and markets responded as such.

Solid growth, a better-than-expected start to the second quarter earnings season, and inflation data suggest the Federal Reserve will be able to tame inflation with higher interest rates, while avoiding another recession. “From a market perspective, the Fed’s decision and Fed Chair Powell’s press conference were essentially a non-event as the equity and bond market saw a very muted response to these events, highlighting that the Fed acted as anticipated,” said Larry Adams – Raymond James Chief Investment Officer.

We witnessed advancements across markets and our client portfolios during the month of July. The Dow Jones had its longest winning streak since 1987 and ended the month up +3.35%, Nasdaq powering ahead by +4.05%, S&P 500 in the green by +3.11%, small-caps notched another month of outperformance vs the Nasdaq and S&P (though remain notable YTD laggards) forging ahead +6.06%, bonds still floundering in the red by -0.27%, Gold bouncing a bit +2.29% and oil the clear winner +15.14%. Despite some catch-up, there remains a large dichotomy in performance across indexes, with the Russell 2000 or small cap index underperforming the most in two decades. Great news is when this gap has historically happened, small caps went on to outperform by nearly 50 points over the following five-year period. (Barron’s)

As opined here for the past few months, the stock market is headed to new all-time highs this year. With each passing day, Wall Street firms and analysts are throwing in the towel – they had it all wrong! Now that we are approaching “dizzying heights”, it should be noted price earnings ratios are not as elevated as one would think – because earnings have marched on and monetary policy is providing for multiple expansion, yet again.

In addition, history is not a prediction of future performance, however looking at the six prior times the S&P 500 was up five straight months in July, the return for the balance of the year was 8% on average with a 100% win rate. Broadening out the analysis to include only those years when the January-through-July returns were 10% or more yields a more robust sample size of 21 instances going back to 1960. These years return on average 4.8% from August to December with 95% of the results positive. (The only negative return was 1987, famous for its Black Monday crash in October)

Have a Great August & enjoy remainder of Summer! I will be traveling & recharging as usual early September, gearing up for a strong finish to a tremendous year and a few additional enhancements to The Schmitt Group! Stay tuned! For your pleasure reading – please find published whitepaper attached – Is the US creating a Central Bank Digital Currency by Raymond James Chief Economist Eugenio J. Aleman, Ph.D.

Onward & upward always!

Steven W. Schmitt, MBA, CFP^®, CPM^®, CRPS^®, ADPA^®
Managing Director
The Schmitt Group of Raymond James