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Monthly Market Monitor - July 2014 Recap

Market Indices1JulyYear-to-Date
S&P 500-1.38%5.66%
Russell 3000-1.97%4.83%
MSCI EAFE-1.97%2.72%
MSCI Emerging Markets1.93%8.19%
Barclays US Aggregate Bond-0.25%3.66%
Barclays Municipal0.18%6.18%
Barclays US Corporate High Yield-1.33%4.05%



  • Major U.S. equity indices posted their first monthly losses after five months of gains.
  • Tensions escalated after the U.S. and EU imposed deeper economic sanctions on Russia.
  • Municipal bonds are outperforming all other U.S. broad-maturity bond categories in every month so far this year.

Despite reaching an all-time high on July 24th, the S&P 500 Index ended July on a sour note, down 1.4% including dividends for the month. Investors moved to the sidelines on July 31st after a series of geopolitical risks, earnings disappointments and worrisome economic data converged to challenge their optimism. Among negative catalysts, the major concern was over an unexpected 0.7% 2Q rise in wages as measured by the Employment Cost Index, spurring inflation fears and with it, the potential for an earlier-than-forecast Fed rate hike. The Dow Industrials lost 317 points (-1.9%) that day, erasing gains for the year, while the S&P 500 retreated 2%, its worst single-day performance since April 10th. The benchmark S&P 500 has gone without a 10% correction since 2011 and now trades at 17.6 times reported earnings, its highest level since 2010. Meanwhile, U.S. economic growth rebounded in the 2Q, up 4% after a 2.1% 1Q contraction. Also positive, corporations are poised to report their strongest quarterly profit gains in almost three years, up 11% so far for S&P 500 companies.

Small-cap stocks underperformed large-caps by a wide margin as the Russell 2000, a proxy for small-cap equities, retreated 6.1% in July, erasing year-to-date gains. Mid-cap stocks, as measured by the Russell Mid Cap Index, fell 3% last month, trimming 2014 gains to 5.5%. In a reversal from June, growth regained leadership over value as the Russell 1000 Growth Index fell 1.5% in July, whereas the Russell 1000 Value Index lost 1.7%. YTD however, the Russell 1000 Value Index has outperformed the Russell 1000 Growth Index (6.4% versus 4.7% respectively).

Just three of the ten major sector groups posted gains in July: Telecom (+3.7%), Technology (+1.5%) and Healthcare (+0.1%). Utilities (-6.8%), Industrials (-4.1%) and Energy (-3.3%) fell the most. Utilities (+10.6%) lost its best YTD performing sector status to Healthcare, up 10.7%. Technology (+10.5% YTD) is this year's third best performing sector.

Overseas developed markets underperformed the U.S. in July as the MSCI EAFE Index fell 2%. U.S. equities maintain a sizable performance advantage over developed markets on a YTD basis. Emerging markets, as measured by the MSCI Emerging Markets Index, outperformed the U.S. and the EAFE last month and YTD, gaining 1.9% and 8.2% respectively. China's Shanghai Composite Index rallied 7.5% in July, its strongest gain in seven months.

Treasuries, as measured by the Barclays U.S. Government Bond Index, lost 0.2% in July, paring YTD gains to 2.5%. Despite increased volatility that brought its yield down to 2.47%, 10-year Treasury yields rose only three basis points during the month to 2.56%. U.S. investment grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, lost 0.3% in July, trimming its YTD gains to 3.7%. The Barclays U.S. Corporate High Yield Index, a proxy for non-investment grade corporate bonds, fell 1.3%, paring its YTD returns to 4.1%. Municipal Bonds, as measured by the Barclays Municipal Bond Index gained 0.2% last month and rose 6.2% YTD.
  1. Morningstar Direct (all performance percentages are total return based, which include reinvested dividend, interest)

This information is compiled by Cetera Investment Management.

About Cetera Investment Management
Cetera Investment Management LLC provides passive and actively managed portfolios across five traditional risk tolerance profiles to the clients of financial advisors, who are affiliated with its family of broker-dealers and registered investment advisers. Cetera Investment Management is part of Cetera Financial Group, Inc., which includes Cetera Advisors LLC, Cetera Advisor Networks LLC, Cetera Financial Specialists LLC, and Cetera Investment Services LLC.

About Cetera Financial Group
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No independent analysis has been performed and the material should not be construed as investment advice. Investment decisions should not be based on this material since the information contained here is a singular update, and prudent investment decisions require the analysis of a much broader collection of facts and context. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The opinions expressed are as of the date published and may change without notice. Any forward-looking statements are based on assumptions, may not materialize, and are subject to revision.

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