Not the usual suspects

Mike Loewengart, Vice President of Investment Strategy

E*TRADE Capital Management


Similar ending, slightly different script.

Equities’ sustained run may have some feeling like their monthly gains are becoming the norm. But the market’s been anything but ho hum, especially with investors finding new narratives to explore. In July, rising oil prices had investors turning toward energy stocks in a meaningful way for the first time this year. The oil rebound likely didn’t slow interest in emerging market equities either, as investors continued a 2017 theme of finding new investment opportunities in previously beaten down markets.

Perhaps helping sustain the momentum for U.S. equities was the dollar’s continued slide, as a softer greenback can be a catalyst, especially for those domestic firms that export goods and services. Yet another month without marked progress toward pro-growth policies from lawmakers in Washington likely contributed to another dip in the U.S. Dollar Index, which tracks the USD against a peer basket of six foreign currencies. Moderate economic growth and reduced expectations for an interest rate hike in September may have weighed on the USD as well.

The Federal Reserve and Chair Janet Yellen remained anything but a bit player for investors. The Fed held the benchmark interest rate at 1–1.25% at its July meeting, as expected, but officials said they could begin unwinding the $4.5 trillion of assets on the Fed’s balance sheet “relatively soon.”1 Some market observers took that Fed-speak to mean the timing of this next step in the economy’s recovery could be announced in the fall.

U.S. Dollar Index in July

Source: Bloomberg

Domestic equities

U.S. equities continued to produce solid returns in July, with all three major U.S. indexes, including the S&P 500®, the Dow Jones Industrial Average, and the Nasdaq, hitting record highs at various points during the month.

U.S. equity performances in July

Source: Morningstar

But in something of a new twist, the energy sector (+2.50%) notched its first positive monthly gain of the year on the back of rising crude prices. Also, telecom (+6.36%) surprised with a big month-end surge, likely on strong earnings reports from some of the sector’s biggest names, including Verizon. Technology (+4.33%) emerged from their June wreck relatively unscathed despite a late July blip.

Spurred by the FANG stocks (Facebook, Apple, Netflix, and Google), technology (+22.31%) continues to set the bar on year-to-date sector performance. Health care (+16.97%) has been particularly resilient in light of the legislative wrangling in D.C. And consumer discretionary (+13.08%), likely pushed by all things Amazon, has posted solid gains this year as well. 

International equities

Foreign equities tended to outperform domestics, with the strongest returns coming from emerging markets. After years of negative reviews due to economic uncertainty and geopolitical headwinds, emerging market equities continue to surge in 2017.  

International equity performances in July

Source: MSCI

The MSCI LatAm Index bounced back (+8.28%) from a rough June, led by a reinvigorated Brazil. Analysts attributed part of the rise in the MSCI Brazil Index (+10.85%), which measures the performance of Brazil’s large- and mid-caps, to news that former President Luiz Inacio Lula da Silva was sentenced to a 10-year prison term for corruption. The hope there is that the ruling is a big step forward in the country’s longstanding battle against political corruption. Elsewhere, the MSCI EM Asia Index (5.58%) and the EM EMEA Index (5.18%) notched positive gains on the month as well.

Fixed income

The broad fixed income market posted solid returns in July, with nearly all sectors and maturities contributing. Tax-sensitive, fixed income holdings generally outperformed comparable maturity and credit quality taxable holdings, with municipal bonds showing resiliency and strong demand despite a slew of negative headlines.

U.S. government bonds ended the month on a high, which some attributed to the potential for slower-than-expected interest rate hikes from the Fed. The yield on the 10-year Treasury note ended July at 2.30%.

Investors also paid close attention to the Fed’s statement about the upcoming balance sheet reduction. Known as quantitative tightening, the Fed’s upcoming asset sales stand to affect the long end of the yield curve, in contrast to how the fed funds rate affects the short end. The yield curve, which plots interest rates for Treasuries against the length of time they have to reach maturity, has been on a flattening trend for much of the year. But the 2–10 Treasury spread, a common indicator of economic health and activity, widened a few ticks early in the month before flattening at month-end.

2–10 Treasury yield curve spread year to date

Source: Morningstar

The bottom line

Many investing pros note that the equity market’s blockbuster performance this year doesn’t appear to show signs of slowing down. Currently, market observers aren’t identifying any real pockets of over-exuberance, in contrast to, say, the tech bubble in 1999.

Strong returns will not always be the case, of course, but trying to time the markets, whether buying in or selling out, typically proves folly. However, recent market history may cause some to wonder—Does staying in this market mean you’re being complacent? Hardly.

A well-balanced portfolio that’s aligned with investors’ goals may help weather the market’s inevitable ups and downs over the long term. And staying on top of a diversified portfolio is anything but complacent. 

As always, thank you for reading.


Mike Loewengart

Vice President, Investment Strategy

E*TRADE Capital Management, LLC


Additional contributor:

Andrew Cohen, CFA

Director, Investment Strategy

E*TRADE Capital Management, LLC


Mike Loewengart is the Vice President of Investment Strategy for E*TRADE Capital Management, LLC. Mike is responsible for the asset allocation and investment vehicle selections used in E*TRADE’s advisory platforms. Prior to joining E*TRADE in 2007, Mike was the Director of Investment Management for a large multinational asset management company, where he oversaw corporate pension plan assets. Early in his career, Mike was a research analyst focusing on investment manager due diligence for the consulting divisions of several high-profile investment firms. Mike holds series 7, 24, and 66 designations, as well as the Chartered Alternative Investment Analyst (CAIA) and Certified Investment Management Analyst (CIMA) designations. He is a graduate of Middlebury College with a degree in economics.

Andrew Cohen is a Director of Investment Strategy for E*TRADE Capital Management, LLC. Prior to joining E*TRADE, Andrew was the Director of Investments and Operations for a large Registered Investment Advisor, where his responsibilities included investment manager research, asset allocation, and portfolio construction. Previously, he was a Senior Research Analyst and Team Leader for a leading wealth management platform. He is a CFA charterholder and a member of both the New York Society of Security Analysts and CFA Institute. He is a graduate of Virginia Tech with a B.S. in Finance.


1. Federal Reserve, 26 Jul. 2017.