Going, Going, Gone
Luke Combs

Like the changing of the seasons /
Good things, they come and then they go

The end of July brought Lollapalooza weekend to Chicago.  A four-day music festival that welcomes bands with names such as Barry Can’t Swim, Zinadelphia, and Still Woozy among the more than 100 performers.  Many are not well known but one could have a breakout performance that changes their path for years to come – see Chappelle Roan at 2024 Lollapalooza.   At Lolla, while there is something for everyone’s taste, it is the big names that draw the more than 100,000 people each day to the festival.  This year’s list included Tyler The Creator, Luke Combs, Olivia Rodrigo and Sabrina Capenter.  Some of them are on the rise with big potential ahead and others may be a bit past their prime, but they can still put on a great show, playing the hits for their large and loyal fan base that can be counted on to buy high priced tickets.

There are some parallels between the Lolla experience and what happened across the investment markets in July.  US equities moved modestly higher, driven to new record levels by some of the headliners of the last couple of years – Nvidia and Alphabet – although a couple of the big names – Apple and Tesla – failed to deliver a good show for their loyal fans.  July’s returns were more muted following the big bounce in the second half of Q2.  The passage of the Big Beautiful Bill had largely been priced into the market already and attention turned to debt levels and questions about inflationary effects of tariffs and a wait and see Fed.  US Q2 corporate earnings growth was generally strong as the delay in tariffs and pulling forward of revenues helped companies.  The enthusiasm shown to non-US equities, which had moved to the top of the charts starting last year until mid Q2, has waned despite continuing to have an improving backdrop and strong fundamentals.  Unfortunately, the continued threat of tariffs has caused many of their more recent fans to get back on the familiar US mega cap bandwagon.  The bond market, which recently has been more like a side stage alt-indie band with few memorable songs that fans give some attention to as they pass by, posted mixed results.  Interest rates rose a small amount along the yield curve hurting returns in an otherwise positive credit environment.

After struggling in March and early April, US equities have bounced back and may be on pace for another double-digit return in 2025.  Looking ahead, there is a growing level of concern about the effects of US trade and fiscal policy on economic growth and unemployment levels in the second half.  While it is too early to know the full impact of the proposed and implemented tariffs on the US and global economy, it is reasonable to be thinking about the potential downsides of these significant changes in policy and what they may mean for investment markets in the months ahead.  Equity markets have been on a good run and there may be enough strength and momentum to keep them as the headliners for months to come, but eventually the shows do end, and fans move on to the next hot band.  As the lyrics in this month’s song read – Like the changing of the seasons / good things, they come and then they go.

Here are observations on what occurred across the public markets in July:

Broad Market Performance¹

Domestic Equity²

• US stocks continued to rise in July, buoyed by a few mega growth stocks in the technology sector. As the month ended, equities sold off on concerns about tariff impacts.
• Large cap growth stocks were the leading category for the month though there was reasonable breadth across size and style groups.

International and Global Equities³

• Non-US developed markets delivered negative returns for the month as the US dollar rallied, impacting earnings expectations for many European and Japanese companies.
• Emerging market stocks were up broadly, with China performing well as it pushes back on the US tariffs and increases domestic spending.

Fixed Income Markets⁴

• The US yield curve shifted higher as expectations for rate cuts softened while longer maturities rose as investors focused on the rising debt levels. Credit sectors performed better, highlighting their strong fundamentals year to date.

Specialty Markets⁵

• Commodity indices were mixed, with weakness in agricultural products and natural gas offset by rising oil and gold prices.

Sectors⁶

• The IT and Utilities sectors were the two best performing S&P 500 sectors while Healthcare and Consumer Staples posted negative returns for the month.

If you have questions or want to discuss the current state of the investment markets and their impact on your plan or portfolio, please do not hesitate to reach out to your advisor—they are here to help.

In the meantime, enjoy your favorite bands or check out a new one.

1-6 All data supplied by Morningstar.

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