The month of July kicked off with positive data points on the U.S. economy and ended on the same bullish note. After the first-quarter U.S. economic growth figure being revised up to 1.4% at June end, from the previous estimates of 1.2% in May, the mood was upbeat at the start of July. Positive vibes were also felt at the end of the month, when U.S. GDP was reported to have expanded 2.6% year over year in Q2, almost double the Q1 growth rate (read: U.S. Economic Growth Improves: ETFs to Buy).
However, the political debacle was rife in the month with the failure of Trump’s healthcare bill. The collapse of the bill in the Senate triggered concerns over the passage of Trump’s other pro-growth policies like tax cuts, deregulation and infrastructure spending.
The S&P 500-based fund (SPY - Free Report) , the Dow Jones Industrial Average-based ETF (DIA - Free Report) and the Nasdaq 100 based ETF (QQQ - Free Report) gained about 1.9%, 2% and 5.2%, respectively, in the last one month (as of July 21, 2017).
Let’s take a look at what drove such market performance in the month of July.
Oil’s Best Month This Year
Oil prices made a comeback in late July. The U.S. benchmark crossed the $50-a-barrel mark to trade at a two-month high. The commodity saw the highest monthly gain in July. WTI fund United States Oil Fund LP (USO - Free Report) added about 6.9% while United States Brent Oil (BNO - Free Report) advanced about 6.3% in the month.
Easing concerns over supply glut and chances of U.S. sanctions against Venezuela's oil sector gave a boost to the price. The U.S. disapproval came on the heels of Venezuela’s President Nicolas Maduro holding a weekend election to gain unrestricted power in the country.
Added to this, Nigeria – once barred from the ongoing output freeze deal – may be asked to join the deal by freezing or even cutting its output from 1.8 million bpd, once it stabilizes at that level from 1.7 million bpd recently, as perCNBC. On the other hand, U.S. producers are planning less capital investments in the oil patch. So, a global effort to shore up oil prices was behind the latest surge in the commodity.
Healthcare Bill Failure
U.S. President Donald Trump’s first major legislative move to overhaul the country’s healthcare system was hit hard after Republican leaders in the Senate abandoned the healthcare bill in mid-July aiming to repeal and replace Obamacare. As a result, health care ETFs were subdued in the month (read: ETFs to Buy/Avoid After Healthcare Bill Failure).
Biotech funds still stayed afloat as the space kept up the momentum gained in June-end on compelling valuation, ebbing threats related to the price gouging issue and several successful clinical trials.
Asset Rollback Top Priority of Fed
As widely expected, the Fed stayed put on its rate hike agenda in its July meeting but called asset curtailment its top priority. The Fed indicated that it plans to start normalization of its $4.5-trillion balance sheet “relatively soon”. However, investors did not pay much attention to the talks of reverse QE. Yields of the benchmark 10-year U.S. Treasury notes slipped to 2.30% on July 31 from 2.35% recorded at the start of the month. iShares 3-7 Year Treasury Bond ETF (IEI - Free Report) gained about 0.6% in the month (read: Asset Rollback Top Priority of Fed: ETFs in Focus).
Gold Glittered in July
Gold bullion too regained its shine in July on weaker greenback. Political upheaval in Washington, some weak U.S. economic data and a still-dovish Fed capped the dollar’s strength. Subdued inflation is actually holding the Fed back from being too aggressive on the policy tightening issue. Powershares DB US Dollar Index Bullish Fund (UUP - Free Report) lost about 3.3% in the month while gold bullion fund SPDR Gold Trust (GLD - Free Report) added about 4%.
Tech Stocks’ Rebound After Sell-Off
Tech was a sweet spot in the first half. However, the stupendous tech rally made the space guilty of overvaluation, causing a crash in June. Though many were doubtful whether the tech sell-off would continue in the second half, tech stocks turned around in July on decent earnings.
Over 50% of the tech companies on the S&P 500 universe have reported already. Among these, 87.1% companies beat on both the top and the bottom line. This upbeat figure perhaps lifted investors’ sentiment, which is why Technology Select Sector SPDR ETF (XLK - Free Report) tacked on 5.2% gains in July (read: Why You Should Bet on Blue Chip ETFs Now).
Sweet Gains in Softs
Several agricultural commodities including sugar, coffee and cocoa exchange-traded products added stellar gains in July. Grain prices benefited from USDA’s acreage report and weather concerns (read: Should You Ride the Momentum in Grain ETFs?).
Plus, a recovery in the Brazilian real against the struggling greenback helped coffee and sugar prices as Brazil is the major producer of these commodities. On the other hand, signs of an uptick in global demand acted as tailwind to cocoa prices. iPathBloomberg Coffee SubTR ETN , iPath Bloomberg Cocoa SubTR ETN (NIB - Free Report) and iPath Bloomberg Sugar SubTR ETN SGG gained about10.10%, 6.1% and 8.2%, respectively, in the month.
Brazil on a Tear on Policy Easing & Anti-Corruption Movement
Large-cap Brazil ETF iShares MSCI Brazil Capped ETF (EWZ - Free Report) and small-cap fund iShares MSCI Brazil Small-Cap ETF (EWZS gained about 9.9% and 14.6%, respectively, in the last one month (as of July 31, 2017). The reason for this jump is steady policy easing.
The Central Bank of Brazil slashed its key Selic rate by 100 basis points to 9.25% in late July. It marked the seventh rate cut in a row, “bringing borrowing costs to the lowest since September of 2013 amid slowing inflation” (read: Are Q1 ETF Toppers Healthy Enough for Further Run in Q2?).
Also, Brazil’s former president Lula has been sentenced to about 10 years of imprisonment for corruption. Former president Dilma Rousseff went through an impeachment also. In short, steady anti-corruption movement may have pushed investors toward Brazil investing.
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