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CurAlea Associates LLC is an independent risk and due diligence advisory firm focused on hedge funds and family offices.

Monday, August 3, 2020

July 2020 - Monthly Market Commentary

Most risk assets rallied in July despite the continued upward march of global coronavirus case and death counts, as the fitful reopening of the global economy moved cautiously forward.  Global equities moved mostly higher, with large cap growth stocks again leading the rally, the oil complex continued its rebound, the US dollar index significantly weakened, and the US yield curve flattened; notably, both the Nasdaq index and the price of gold reached all-time highs during the month.  Q2 GDP reports highlighted the disparate economic impact wrought by the coronavirus – US GDP down 9.5% for the quarter, Europe GDP down 12.1%, and China GDP up 3.2%.  The European Commission reached a deal on a 750 billion euro stimulus package of grants and loans focused on those regions and sectors most impacted by the virus.  In the US, partisan disagreement on an additional stimulus package led to the expiration of emergency unemployment benefits.  At its July policy meeting, the Federal Reserve made no change to interest rates, pledged to continue its extraordinary monetary support, and stated that “the path of the economy will depend significantly on the course of the virus”.  China’s industrial production increased 4.8% in June, and its July PMI reading rose to 51.1, though retail sales fell for the fifth straight month.  The most recent initial US jobless claims report (for the week ended July 25) showed that weekly jobless claims totaled 1.4 million, the 19th consecutive week above 1 million (a level never reached in the pre pandemic era), and the second consecutive week in which claims rose, and continuing claims rose to over 17 million.  The June US jobs report showed that 4.8 million jobs were added during the month, the unemployment rate fell to 11.1% (from 13.3%), the labor force participation rate rose to 61.5%, average hourly earnings decreased 1.2%, and the total labor force rose to 159.9 million, of which 142.2 million were employed. 

Developed market equities were mixed in July (see page 8), with the largest gains in the S&P 500 (+5.6%), Canada (+4.2%), and Australia (+0.3%), and the largest losses in Spain (-4.8%), the UK (-5.4%), and Japan (-3.6%).  US large caps outperformed small caps, with the Russell 2000 up 2.8%, and the Russell 1000 up 5.9% (see page 3).  The best performing S&P 500 sectors in July were Consumer Discretionary (+9%), Utilities (+7.8%), and Materials (+7.1%), and the worst performing were Energy (-5.1%), Financials (+3.8%), and Real Estate (+4%).  Large cap growth (+7.7%) outperformed large cap value (+4%) in July (see page 3).  Emerging market equities mostly rose during the month (see page 9), with the biggest gains in Taiwan (+15.4%), Argentina (+12.5%), and India (+9.4%), and losses in the Philippines (-4.2%), Thailand (-2%), and Mexico (-1.2%).

In currencies, the USD Index weakened sharply in July (see page 10), and the Swedish Krona (+6.2%), Norwegian Krone (+5.8%), and British Pound (+5.5%) saw the biggest gains against the USD.  Emerging market currencies were mixed against the USD, with the biggest gains in the Brazilian Real (+4.6%), Mexican Peso (+3.3%), and South African Rand (+1.6%), and the biggest losses in the Russian Ruble (-3.9%), Turkish Lira (-1.7%), and Indonesian Rupiah (-1.6%).

The US interest rate curve flattened in July (see page 12).  10 year rates closed the month at 0.53%, from 0.66% at June month end.  US investment grade and high yield spreads tightened (see page 13).

In commodities, the GSCI index increased (+3.8%) in July (see page 11), with gains in Precious Metals (+10.3%), Industrial Metals (+6.7%), Livestock (+6.1%), Energy (+2.6%), and Agriculture (+1.4%).  Within individual commodities, Silver (+30%), Coffee (+17.8%), and Cocoa (+9.8%) saw the biggest gains, while Corn (-7.5%) and Gasoline (-0.8%) saw the biggest losses.  Gold was up 8.5% in July.

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