Presented by Rich Tegge

U.S. markets bounce back

After a difficult June, the markets bounced back in July. The S&P 500 Index closed up 2.10 percent, and the Nasdaq did even better, gaining 2.84 percent. The Dow Jones Industrial Average, however, returned just 0.52 percent.

The recovery of U.S. markets was largely driven by positive earnings news. Per FactSet, as of July 31, almost three-quarters of reporting companies had beaten earnings estimates, while a little more than half had beaten sales forecasts. Actual overall earnings and sales numbers were better than forecast in late June.

Technical factors were mixed. The S&P 500 and Nasdaq recovered to well above their 200-day moving averages, but the Dow remained below that technical level.

Developed international indices also rebounded in July, with the MSCI EAFE Index up 2.08 percent. The strong results came from a reduction in political uncertainty, as the Greek crisis was resolved for at least the short-term, and continued economic improvement, as the European and Japanese economies still showed growth. But technical factors were marginal, with the EAFE bouncing around its 200-day moving average.

Emerging markets, as represented by the MSCI Emerging Market Index, had a very bad July, losing 7.26 percent. Technical signs for emerging markets were also weak.

Fixed income bounced back, largely due to a decrease in intermediate and long-term rates. The Barclays Capital Aggregate Bond Index returned 0.70 percent for July, regaining most of what it had lost during June.

U.S. economic recovery slow but steady

July’s economic data indicated continued recovery. Employment reports showed an increase of 223,000 jobs, below expectations but enough to drive the unemployment rate down to 5.3 percent. More good news included the announcement of the highest number of job openings ever, 5.363 million, in the JOLTS report.

Wage growth remained a disappointment. The Employment Cost Index report showed a significant slowdown in compensation growth, from 0.7 percent in the first quarter to 0.2 percent for the quarter ending June 30, the worst quarterly change since the measure was first calculated in 1982 (see Figure 1).

Figure 1: Employment Cost Index, 1982—Second-Quarter 2015

ECI wages

Housing was a bright spot. Prices continued to rise, with the S&P/Case-Shiller Index showing an average increase of just under 5 percent in June. Housing starts were up 9.8 percent from May to June, and existing home sales grew well above expectations, at 3.2 percent for June. Weak signs included declines in new and pending home sales.

Consumer confidence seemed to slacken by July-end. Retail sales growth was disappointing, with a decline of 0.3 percent over the previous month, which was also revised down. Further, the Small Business Optimism survey, conducted by the National Federation of Independent Business, indicated decreasing business confidence, with declines in 9 of 10 regions.

International risks recede for the moment

During July, the Greek crisis raised the possibility of a eurozone collapse, and Chinese stock markets crashed. Either could have led to systemic dislocations. The fact that neither did is a good sign of the stability of the current recovery.

Good summer weather continues, though storms remain likely

Although U.S. economic growth continues, signs of slowing are apparent. Nonetheless, leading indicators are positive, and the second half of the year could likely be stronger than the first.

Even so, substantial risks remain. Investors have benefited from a just-right mixture of economic acceleration, economic and monetary policies, and geopolitical calm over the past couple of years. But favorable conditions may become less so. Moreover, the current high-valuation and low-volatility levels of U.S. markets serve to increase risk.

In the big picture though, risk is normal, and the U.S. is well positioned to ride out uncertainty. The U.S. economy and financial markets are among the most solid in the world. We believe that a well-diversified portfolio with regular rebalancing is still the best way to meet long-term financial goals and should be maintained through good times and bad.

All information according to Bloomberg, unless stated otherwise.

 Disclosure: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Barclays Capital government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities.

 Rich Tegge is a financial advisor located at Wealth Strategy Group 300 S. Front St. Ste C Marquette, MI  49855. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 906-228-3696 or at

Authored by Brad McMillan, senior vice president, chief investment officer, at Commonwealth Financial Network.

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