Markets & Economy

Monthly Market Review

July 2019
T. Rowe Price

Stocks recorded modest gains in July, helping lift the large‑cap benchmarks and the technology‑heavy Nasdaq Composite Index to new highs. Trading volumes were generally light, and volatility was also subdued—the S&P 500 Index recorded only one daily move over 1%, falling 1.09% on the last day of the month. Within the S&P 500 Index, communication services performed best, helped by strong gains in Alphabet (parent of Google) and Twitter following earnings releases. Technology shares were also strong, lifted by gains in semiconductor stocks. Energy shares recorded losses, pressured by a drop in oil prices. Health care stocks were dragged lower in part by a drop in Johnson & Johnson shares following reports of a criminal probe into whether the company lied about the possible cancer risks of its talcum powder.

Resumption of Trade Talks Boosts Sentiment Early in Month

Trade tensions, the faltering global economy, and hopes for a strongly dovish turn in monetary policy continued to dominate investor sentiment in July. The announcement of a truce in the U.S.‑China trade war at the G‑20 summit at the end of June helped stocks begin the month on a strong note. Both sides agreed to hold off on further tariff increases, and the White House eased a ban on sales to Chinese telecommunications giant Huawei Technologies, giving a particular boost to semiconductor stocks. According to the White House, China also pledged to buy more U.S. agricultural goods, although Chinese officials reportedly disputed the claim. Sentiment also seemed to get a lift later in the month, as Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer prepared to fly to Shanghai to resume negotiations.

Hopes for a deal faded significantly on the final two days of the month, however. An increase in the purchase of U.S. farm exports by the Chinese failed to materialize, angering the White House, and on July 30, President Donald Trump told reporters that “the biggest problem to a trade deal is China would love to wait” until he is replaced in 2020 (which he vowed is not going to happen). President Trump followed up the next day with additional criticism of China on Twitter, setting the stage for his announcement on August 1 of a new 10% tariff on the USD 300 billion of Chinese imports that had previously escaped duties.

U.S. Indexes
Total Returns

 

July

Year-to-Date

Dow Jones Industrial Average

1.12%

16.69%

S&P 500 Index

1.44 20.24

Nasdaq Composite Index

2.11

23.21

S&P MidCap 400 Index

1.19

19.38

Russell 2000 Index

0.58

17.66

Past performance is not a reliable indicator of future performance.
Note: Returns are for the periods ended July 31, 2019. The returns include dividends based on data supplied by third‑party provider RIMES and compiled by T. Rowe Price, except for the Nasdaq Composite Index, whose return is principal only.
Sources: Standard & Poor’s, LSE Group. See Additional Disclosures.

Slowing Global Growth Leads to Fed Rate Cut—But Not the Aggressive Action Some Had Anticipated

Further evidence emerged in July that China and other areas of the global economy—particularly export‑oriented economies in Europe—were coming under pressure from the trade war. On July 10, Fed Chair Jerome Powell told the House Financial Services Committee that “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.” Stocks rose on the release of his testimony, which seemed to promise aggressive Fed action to counteract the downturn. Such hopes rose further on July 18, after Federal Reserve Bank of New York President John Williams said in a speech that “it pays to act quickly to lower rates at the first sign of economic distress.” Futures markets immediately priced a high (71%) likelihood of a 50‑basis‑point (0.50%) rate cut at the Fed’s July 30–31 policy meeting. A New York Fed spokesperson soon clarified that Williams was not promising a specific action at the upcoming meeting, however, and investors returned to anticipating a quarter‑point cut.

On July 31, as expected, the Fed announced a quarter‑point reduction in the federal funds rate—its first cut in a decade—along with an early end to its program of shrinking its balance sheet. In his post‑meeting press conference, however, Chair Powell seemed to take markets by surprise by referring to the cut as a “midcycle adjustment.” The term seemed to imply to some investors that the Fed was not entering an easing cycle with more cuts ahead, and shares fell sharply to close out the month.

U.S. Economy Remains a Positive Outlier, Favoring Domestically Oriented Firms

Indeed, much of July’s domestic economic data were encouraging, suggesting that the Fed might not have to ease aggressively in the coming months. June payroll growth came in well above expectations, and the Conference Board’s consumer confidence index rebounded much more than expected. Retail sales recorded a second month of solid gains in June, and durable goods orders (outside the volatile transportation sector) also beat expectations. On the downside, factory activity remained subdued, and the housing sector also proved something of a weak spot, with existing home sales falling and new construction data sending mixed signals.

The contrast between domestic and global economic conditions was reflected in the second‑quarter earnings reports released during the month. According to FactSet, S&P 500 companies that get more than half of their revenues from overseas were on track (as of July 26) to suffer a year‑on‑year earnings decline of 13.6%, while domestically focused firms were set to report an increase of 3.2%. Overall, both FactSet and Thomson Reuters ended July expecting earnings growth to be roughly flat in the second quarter following 2018’s surge, although more companies than usual had been beating expectations.

Trade Tensions May Undermine an Earnings Rebound

Generally, T. Rowe Price managers remain cautiously positive about global economies and financial markets, although the recent escalation in trade tensions has triggered renewed volatility and could further impede growth. The consensus earnings forecast is for a reacceleration of earnings growth later in the year, which will depend on improving global growth, particularly outside the U.S. However, the global economic outlook remains subdued, and earnings momentum has turned negative in both Europe and Japan. While the direct impact of tariffs on earnings currently appears manageable, the secondary effects on business confidence, capital spending, and hiring could diminish hopes for a second‑half earnings rebound.

Additional Disclosures
FactSet. Copyright 2019 FactSet. All Rights Reserved.

J.P. Morgan. Information has been obtained from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2019, J.P. Morgan Chase & Co. All rights reserved.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2019. FTSE Russell is a trading name of certain of the LSE Group companies. “Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

The S&P 500 Index and S&P MidCap 400 Index are products of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and have been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); T. Rowe Price is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index and S&P MidCap 400 Index.

Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

Developed non‑U.S. equity markets fell in July as hopes for more monetary stimulus from developed market central banks offset worries about trade, slowing eurozone growth, and the increased possibility that the UK would leave the European Union (EU) without a deal. The MSCI EAFE Index, which measures the performance of stocks in Europe, Australasia, and the Far East, returned ‑1.26%. Within the index, three sectors rose, while eight declined; the best performers were consumer staples and communication services. Growth stocks in the index held up better than their value counterparts.

Emerging equity markets performed in line with developed non‑U.S. markets overall. On a regional basis, emerging Europe and the Middle East handily outperformed emerging markets in Asia. In Latin America, Brazil posted solid gains, but other markets in the region declined.

European Stocks Pressured by Trade Tensions, Brexit, and Slowing Growth

European equities declined in a tug of war between expectations for easier monetary policy and ongoing concerns about trade, a hard Brexit, and slowing global growth, which continued to take a toll on regional economic growth and investor sentiment. The eurozone economy expanded by 0.2% in the second quarter, down from 0.4% in the first quarter of the year.

International Indexes
Total Returns

MSCI Indexes

July

Year-to-Date

EAFE (Europe, Australasia, Far East)

-1.26%

13.05%

All Country World ex-U.S.A.

-1.18

12.65

Europe

-1.92

14.22

Japan

0.14

8.12

All Country Asia ex-Japan

-1.70

8.94

EM (Emerging Markets)

-1.14

9.50

Past performance is not a reliable indicator of future performance.
All data are in U.S. dollars and represent gross returns as of July 31, 2019.
This table is shown for illustrative purposes only and does not represent the performance of any specific security.
Source: MSCI. See Additional Disclosures.

The ECB Prepared to Cut Rates for the First Time Since 2016

In a nod to the challenges facing the region, the European Central Bank (ECB) kept rates unchanged but signaled that it is willing to cut short‑term rates, if necessary, for the first time since early 2016. T. Rowe Price Economist Tomasz Wieladek said the signal was a major policy shift in response to ECB President Mario Draghi’s promise at this year’s Sintra conference that policy would ease if economic conditions don’t improve. Draghi said that the key downside risks to the economy include trade and a hard Brexit. The euro fell more than 2% against the dollar during the month. Some investors were disappointed that Draghi did not present a timeline for resuming asset purchases to put further downward pressure on long‑term interest rates. However, Wieladek said that Draghi’s press conference revealed a lack of consensus among the governing council, making what happens at the ECB’s policy‑setting meeting in September data-dependent. In his view, the main takeaways from the ECB’s communication included:

  1. The ECB will likely cut rates in September,
  2. The bank is considering more quantitative easing,
  3. It will study the design of a tiered system of reserves,
  4. It will consider more changes to forward guidance, and
  5. The language around the inflation target has changed, with greater emphasis on symmetry.

UK Pound Drops Versus U.S. Dollar as No‑Deal Brexit Odds Rise

Concerns increased throughout the month that the UK would leave the EU without a deal, especially after former foreign secretary and hardline Brexit proponent Boris Johnson succeeded Theresa May as prime minster and head of the Conservative Party. Johnson has vowed to pull the UK out of the EU by the end of October with or without a withdrawal agreement. Hard Brexit concerns sent the British pound down nearly 4% against the dollar and have also increased demand for the safety of UK debt. T. Rowe Price Fixed Income Portfolio Manager Quentin Fitzsimmons now estimates that there is a 65% chance of a no‑deal Brexit. Those odds, he said, increased significantly since Johnson took office and stacked his cabinet with hard-line Brexiters. Fitzsimmons also said a no‑deal Brexit would likely prompt the Bank of England to cut rates later in the year to prevent a slide in the British economy that could result from a disorderly exit.

Japanese Equities Under Pressure From Trade Tensions

Japanese stocks were relatively flat as the U.S.‑China trade dispute continued to take its toll on the trade‑dependent Japanese economy. In expectation of a slowdown in export growth, the country’s Cabinet Office cut its growth forecast for the fiscal year (ended March 2020) to 0.9% from its 1.3% forecast in January. The Ministry of Finance reported that Japanese exports fell for a seventh consecutive month in June, largely due to a sharp decline in chipmaking equipment. Business confidence among manufacturers dropped to a three‑year low, according to the Bank of Japan’s Tankan survey, and industrial production fell in June. While the Bank of Japan left interest rates unchanged in July, it signaled its willingness to employ further monetary easing if economic conditions deteriorated.

Emerging Markets Decline Despite Stimulus Promises

Emerging markets stocks fell amid U.S. dollar strength despite expectations for monetary stimulus in the U.S. and Europe. Except for Brazil, where stocks gained more than 2% on expectations that a pension reform plan with greater‑than‑expected cost savings for the government would become law, Latin American markets declined. The MSCI EM Europe, Middle East, and Africa Index declined less than 1%. Turkey (Borsa Istanbul) was the standout performer in the region, gaining 11%, after the country’s central bank cut its benchmark interest rate to 19.75% from 24%. While the lira initially dropped after the rate cut, it ended the month 4% stronger versus the U.S. dollar. 

Outlook: Global Growth Expected to Moderate, but Bottom May Be in Sight

We expect global growth to moderate against the backdrop of ongoing trade tensions, slowing Chinese demand, and geopolitical disrupters. Trade‑driven economies, including Germany, may be the hardest hit going forward. Indeed, the most recent manufacturing surveys show some of the weakest activity since 2009. A continuation of trade tensions could exacerbate this slowdown, especially if tensions spread to Europe as well, while Chinese monetary and fiscal stimulus have the greatest potential to drive global growth higher. Expectations for additional easing by the Fed and ECB have already loosened financial conditions, and the ECB could restart quantitative easing if eurozone growth remains at the current weak level. Any decrease in oil prices could give growth a boost among oil importers. While some of the political risks that had hung over emerging markets countries have eased, myriad geopolitical and trade issues remain that could spark risk‑related selling and derail markets. Other challenges to the outlook for global equities include the possibility of central bank policy missteps and the rising popularity of anti‑establishment and populist political parties.

Additional Disclosures
MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

Longer‑term Treasury yields finished July little changed, but intermediate‑term rates rose to a greater extent in a month that was highlighted by the Federal Reserve’s first interest rate cut in more than a decade. After starting July at 2.00%, the yield of the benchmark 10‑year Treasury note stood at 2.02% at month‑end. (Bond yields and prices move in opposite directions.)

As Expected, Federal Reserve Delivers Rate Cut

Economic news and changing expectations over the path of monetary policy drove rate fluctuations during July. Early in the month, the yield of the 10‑year note closed below the 2.00% level for the first time since November 2016, hitting a low of 1.96% on July 3 as investors focused on slowing global growth and trade tensions. However, a stronger‑than‑expected jobs report helped drive the 10‑year yield as high as 2.13% by mid‑month. The 10‑year yield dropped from 2.06% to 2.02% on the final day of the month as investors rotated into longer‑term Treasuries in the wake of the central bank’s decision to cut its short‑term lending rate by a quarter percentage point.

In its post‑meeting statement, the Fed pointed to concerns about the global economy and low inflation as the main reasons for moving the fed funds rate to a range of 2.00% to 2.25%. In another accommodative gesture, the central bank policymakers also announced that they are ending their balance sheet reduction two months earlier than previously announced.

A rate cut had been widely expected, although some market participants had been hoping for a larger rate reduction. And Fed Chairman Jerome Powell’s comments describing the move as a “midcycle adjustment” disappointed investors who were looking for a firmer signal that additional rate cuts would be coming.

The yield of the two‑year Treasury note, which is closely connected to monetary policy expectations, rose following the Fed meeting as investors dialed back forecasts for additional cuts. As a result, the two‑year/10‑year portion of the Treasury yield curve flattened during the month while the three‑month/10‑year segment remained inverted. An inversion—meaning the shorter‑maturity security offers a higher yield than the longer one—has often been a precursor to recessions in the past.

Total Returns

Index

July

Year-to-Date

 

Bloomberg Barclays U.S. Aggregate Bond Index

0.22%

 6.35%

 

J.P. Morgan Global High Yield Index

0.61

10.75

 

Bloomberg Barclays Municipal Bond Index

0.81

 5.94

 

Bloomberg Barclays Global Aggregate Ex-U.S. Dollar Bond Index

-0.72

 4.24

 

J.P. Morgan Emerging Markets Bond Index Global Diversified

1.21

12.66

 

Bloomberg Barclays U.S. Mortgage Backed Securities Index

0.40

 4.59

 

Past performance is not a reliable indicator of future performance.
Figures as of July 31, 2019. This table is shown for illustrative purposes only and does not represent the performance of any specific security.
Sources: RIMES, as of July 31, 2019; Bloomberg Index Services Limited, J.P. Morgan. See Additional Disclosures.

Investment‑Grade Corporates Outperform, While Treasuries Lag

Within the Bloomberg Barclays U.S. Aggregate Bond Index, Treasuries were the weakest segment and recorded negative results for the month as intermediate‑term yields increased. Treasury inflation protected securities, however, generated positive returns amid rising inflation expectations. Investment‑grade corporate bonds were the top performers in the index. Corporate earnings reports were generally healthy, and limited dealer inventories and technical factors were supportive for the sector. T. Rowe Price traders noted that inflows to the asset class have doubled from the level seen at the same point last year, while supply is down about 10%. Mortgage‑backed securities also produced solid gains.

U.S. Treasury Yields

Maturity

June 30

July 31

3-Month

2.12%

2.08%

6-Month

2.09

2.10

2-Year

1.75

1.89

5-Year

1.76

1.84

10-Year

2.00

2.02

30-Year 2.52 2.53

Source: Federal Reserve Board.

High Yield Bonds Benefit From Strong Demand, Stock Rally

After very strong results in the first half of the year, high yield corporate bonds continued to produce solid returns in July, outperforming their investment‑grade counterparts. According to T. Rowe Price traders, inflows to the asset class for the year‑to‑date period through July were at their highest level since 2012. Besides solid demand, high yield bonds were supported by the continuing rally in equities. Higher‑quality portions of the sector outperformed. During the month, the Justice Department approved the merger of Sprint and T‑Mobile, two major issuers in the high yield market. Floating rate loans were also positive.

Munis Deliver Robust Returns

Municipal bonds recorded strong results and outperformed Treasuries and the broader U.S. taxable investment‑grade market. Munis continued to benefit from solid demand and relatively muted supply. In issuer‑specific developments, high yield Puerto Rico bonds produced positive returns despite a political controversy that led to the resignation of Governor Ricardo Rosselló. Meanwhile, New Jersey bonds outperformed after Governor Phil Murphy signed a state spending plan to avoid a government shutdown.           

Developed Market Bonds Lag Amid Currency Headwinds

Developed market bonds generally recorded negative results in U.S. dollar terms and underperformed most fixed income segments. The weakness of many currencies versus the dollar weighed on results. Yields in major markets generally declined amid signs of weakening global economic growth, and central banks indicated that they were ready to take action to spur growth. The European Central Bank (ECB) signaled that additional quantitative easing is coming soon, and the Bank of Japan strengthened language in its post‑meeting statement, saying it would “ease policy without hesitation” if progress toward its inflation target is stalled by overseas risks. In Australia, the central bank loosened policy at a second straight meeting, lowering the cash rate to a record low 1% to support employment growth and boost inflation. 

Emerging Markets Bonds Continue First‑Half Rally

Emerging markets bonds were the strongest performers in the fixed income universe, adding to robust first‑half results. The sector recorded steady inflows amid expectations for more accommodative monetary policies, and an increase in developed market bonds that offer negative yields boosted the attractiveness of higher‑yielding emerging markets bonds.

In Turkey, the central bank slashed its key interest rate in the largest rate cut since the central bank began targeting inflation in 2002. The move came less than a month after President Recep Tayyip Erdoğan installed a new central bank governor, which led the Fitch ratings agency to downgrade Turkey’s credit rating, citing concerns about the central bank’s independence. Meanwhile, Brazil’s central bank cut its benchmark rate to a record low 6% due to weaker economic data and a moderation in inflation.

Outlook: Eastern Europe May Offer Opportunities

The T. Rowe Price global fixed income team believes that bond markets in Eastern Europe may benefit indirectly from looser monetary conditions if the European Central Bank cuts interest rates and pursues quantitative easing. Countries such as Serbia and Romania stand out among markets where interest rates could move lower over the medium term. The search for yield could also support euro‑denominated sovereign bonds of countries such as Lithuania, Latvia, and the Czech Republic if the ECB turns more accommodative.

Additional Disclosures
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Information has been obtained from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2019, J.P. Morgan Chase & Co. All rights reserved.

Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

GLOBAL CAPITAL MARKETS ENVIRONMENT

Major U.S. stock indexes produced positive returns in July as several indexes hit new closing highs during the month. In fact, the S&P 500 and the Dow Jones Industrial Average crossed the symbolic thresholds of 3,000 and 27,000, respectively, for the first time in history. In the opening days of the month, stocks benefited from the late‑June agreement between U.S. President Donald Trump and Chinese President Xi Jinping to resume trade negotiations without levying additional tariffs. Nevertheless, the Federal Reserve spent most of the month in the spotlight as anticipation for a Fed rate cut at its July 30–31 policy meeting drove investor sentiment. Some investors feared that the strong June employment report—224,000 new nonfarm payrolls and a 3.7% national unemployment rate―would derail the Fed’s dovish outlook on the U.S. economy and prompt central bank officials to reconsider lowering rates. However, Fed Chairman Jerome Powell’s testimony in front of the House Financial Services Committee helped quell this fear when he acknowledged that “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.” Powell also said that policymakers would “act as appropriate” amid increased uncertainties. On July 31, the Fed did announce a 0.25% rate cut, lowering the fed funds target rate to the 2.00%–2.25% range. Fed officials were not unanimous in their decision, as two Fed Open Market Committee members preferred to keep short‑term rates unchanged. Also, the market closed the month on a negative note, as Powell characterized the Fed’s action as a “midcycle adjustment,” rather than the first in a series of rate cuts.

Large‑cap shares outperformed mid‑ and small‑caps. The large‑cap S&P 500 Index returned 1.44% versus 1.19% for the S&P MidCap 400 Index and 0.58% for the small‑cap Russell 2000 Index. As measured by various Russell indexes, growth stocks outperformed value across all market capitalizations.

In the large‑cap universe, as measured by the S&P 500, sector performance was narrowly mixed. The communication services segment displayed the best returns, thanks in part to the Justice Department approving the USD 25 billion merger of wireless carriers T‑Mobile and Sprint. Information technology (IT) shares also posted strong returns, as a few large IT companies released better‑than‑expected second‑quarter earnings. Consumer staples and financials shares also outperformed the broad index. Energy shares were volatile and finished July with negative returns. Domestic crude supplies fell less than expected, and reports surfaced that Iran had approached the U.S. with an offer to allow greater monitoring of its nuclear program in exchange for allowing a resumption of Iranian oil exports. Health care shares also declined as speculation grew that the Trump administration would turn to different measures―for instance, potentially importing FDA‑approved drugs from foreign countries―to curtail drug price inflation. Materials and utilities shares edged lower.

U.S. Stock Returns
  S&P 500 Index S&P MidCap 400 Index Russell 2000 Index

July

1.44%

1.19%

0.58%

Year-to-Date

20.24 19.38 17.66

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of July 31, 2019; Standard & Poor’s, LSE Group. See Additional Disclosures.

Domestic investment‑grade taxable bonds produced slight positive returns, as long‑term Treasury yields edged higher while intermediate‑term yields rose to a greater extent. The Bloomberg Barclays U.S. Aggregate Bond Index returned 0.22%. In the investment‑grade universe, corporate bonds and mortgage‑backed securities performed best, albeit with mild gains. Asset‑backed securities were flat. Treasuries fell slightly. Tax‑free municipal bonds produced positive returns and outperformed the broad taxable bond market. High yield bonds modestly outperformed high‑quality issues.

Stocks in developed non‑U.S. equity markets fell slightly and underperformed U.S. shares, as the U.S. dollar strengthened against most currencies. The MSCI EAFE Index, which measures the performance of stocks in Europe, Australasia, and the Far East, returned ‑1.26%. Developed Asian markets were mixed, with New Zealand stocks leading the way, returning almost 4%, while Hong Kong shares fell more than 3%. Japanese shares were flat but held up better than the broad region despite news that Japanese exports in June fell 6.7% from the previous year. The primary factors behind declining exports have been the U.S.‑China trade dispute and a slowdown in economic growth. European stock market returns were also mixed, with Belgian shares returning more than 6%. European shares in general got a boost when International Monetary Fund Managing Director Christine Lagarde was nominated to be the next European Central Bank (ECB) president when current President Mario Draghi steps down in October. Lagarde is expected to continue the loose monetary policy that Draghi has put in place. Shares in the UK fell roughly 2% in U.S. dollar terms as Conservative Party member Boris Johnson won a runoff election to become the new prime minister. Johnson is expected to push for a “no deal” Brexit if that is what is needed for Britain to leave the European Union by the end of October. Many cabinet members who opposed a “no-deal” Brexit resigned or were fired during the month. 

U.S. Bond Returns
  Bloomberg Barclays
U.S. Aggregate Bond
Index

Bloomberg Barclays
Municipal Bond Index

JPMorgan Global
High Yield Index

July

0.22%

0.81%

0.61%

Year-to-Date

6.35

5.94

10.75

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of July 31, 2019; Bloomberg Index Services Limited, J.P. Morgan. See Additional Disclosures.

Emerging markets stocks also fell marginally. The MSCI Emerging Markets Index returned ‑1.14%. Emerging Asian markets were mixed, with Taiwanese shares leading the way, returning almost 4%. Chinese shares were relatively flat. China welcomed U.S. trade negotiators to Shanghai on July 30–31, but negotiations ended without a deal. In Latin America, shares were mostly negative. Brazilian stocks were the lone bright spot and rose roughly 3% as the lower house of the legislature voted in favor of the pension reform bill supported by President Jair Bolsonaro’s administration. Mexican shares dropped about 4%, as market‑friendly Finance Minister Carlos Urzua abruptly resigned early in the month due to internal frictions and policy disagreements with the Andres Manuel Lopez Obrador (AMLO) administration. Mexican equities continued to sag as investors grew skeptical about AMLO’s efforts to stabilize the state‑owned energy firm, Pemex, which is struggling with a high tax burden and declining oil production. In emerging Europe, shares were widely mixed. Stocks in Turkey soared more than 11% in U.S. dollar terms. Turkish shares and the lira strengthened, as the U.S. has refrained thus far from imposing sanctions on Turkey for purchasing Russian military hardware. Turkish equities were also lifted by signs of declining inflation and by the central bank’s decision to slash its key interest rate much more than anticipated, from 24% to 19.75%. Russian shares edged higher, but Polish shares retreated, displaying returns of roughly ‑4%. 

Non-U.S. Stock Returns
  MSCI EAFE Index MSCI Emerging Markets Index

July

-1.26%

-1.14%

Year-to-Date

13.05

9.50

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of July 31, 2019; MSCI. See Additional Disclosures.

Bonds in developed non‑U.S. markets delivered negative returns in U.S. dollar terms amid global economic uncertainties and a stronger greenback versus major currencies. In the eurozone, the ECB kept rates steady at its July policy meeting, but President Draghi signaled that the central bank was ready to act with new measures in order to boost the economy. The German 10‑year bund slumped deeper into negative territory, ending the month near record lows of ‑0.44%, as prospects of renewed eurozone stimulus drew investors to bonds despite negative yields. In the UK, 10‑year UK gilt yields ended July at their lowest level of the month, around 0.61%. In Japan, the Bank of Japan (BoJ) made no changes to its monetary policy at its July 29–30 policy meeting. Governor Haruhiko Kuroda affirmed that the BoJ will take action to achieve the central bank’s 2% inflation goal, if necessary.

Emerging markets bonds displayed positive returns and outperformed bonds in developed markets. Dollar‑denominated debt outperformed local currency issues, as most developing currencies fell against the dollar. However, two key emerging markets currencies—the Turkish lira and the Brazilian real—bucked the trend and appreciated versus the dollar.

Non-U.S. Bond Returns
  Bloomberg Barclays
Global Aggregate
Ex-U.S. Dollar Bond
Index

JPMorgan Emerging
Markets Bond
Index Global
Diversified

JPMorgan GBI-EM
Global Diversified
Index

July

-0.72%

1.21%

0.93%

Year-to-Date

4.24

12.66

9.73

Past performance is not a reliable indicator of future performance.
Sources: RIMES, as of July 31, 2019; Bloomberg Index Services Limited, J.P. Morgan. See Additional Disclosures.

Additional Disclosures
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Information has been obtained from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2019, J.P. Morgan Chase & Co. All rights reserved.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2019. FTSE Russell is a trading name of certain of the LSE Group companies. “Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

The S&P 500 Index and S&P MidCap 400 Index are products of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and have been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); T. Rowe Price is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index and S&P MidCap 400 Index.

Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

Emerging markets stocks declined in July as signs of weakening global growth and fallout from the U.S.‑China trade rift restrained demand for emerging markets assets. The International Monetary Fund (IMF) offered the latest evidence of slower growth in its July economic outlook, in which the organization cut its global growth projection to 3.2% this year and to 3.5% next year, each down 0.1 percentage point from its April forecast. “The projected growth pickup in 2020 is precarious, presuming stabilization in currently stressed emerging market and developing economies and progress toward resolving trade policy differences,” the IMF said, adding that risks to its outlook were mainly to the downside. Seven sectors fell and four sectors rose in the MSCI Emerging Markets Index. Materials stocks fell the most, while information technology stocks performed the best. 

Total Returns
MSCI Index July Year-to-Date
Emerging Markets (EM) -1.14% 9.50%
EM Asia -1.50 8.22
EM Europe, Middle East, and Africa (EMEA) -0.47 12.85
EM Latin America 0.14 13.02

Past performance is not a reliable indicator of future performance.
All data are in U.S. dollars as of July 31, 2019. This table is shown for illustrative purposes only and does not represent the performance of any specific security.
Source: MSCI. See Additional Disclosures.

Chinese Stocks Mixed Following U.S. Trade Détente; Indian Stocks Decline as Budget Disappoints

  • U.S. dollar-denominated Chinese stocks declined and yuan‑denominated A shares edged higher as investors welcomed a trade battle ceasefire struck by President Trump and his Chinese counterpart Xi Jinping at the G‑20 summit in late June, though expectations of a lasting solution remained dim. China reported that its economy grew 6.2% in the second quarter from a year ago, marking the country’s weakest quarterly growth on record.
  • Indian stocks shed roughly 5% amid a sell‑off led by foreign investors after the government released the federal budget for the current fiscal year. The spending plan calls for increased taxes on the wealthy and a narrower budget deficit target over time, disappointing those who had hoped that India’s government would spend more to stimulate the slowing economy.
  • Southeast Asian markets were mixed: Stocks in Indonesia and the Philippines advanced slightly but declined in Malaysia and Thailand. Indonesia’s central bank cut its benchmark interest rate by 25 basis points to 5.75%, its first rate cut since September 2017, and pledged more easing. Malaysia’s central bank kept its benchmark rate and 2019 growth forecast unchanged but warned that worsening trade tensions, commodity‑related weakness, and global uncertainties made its projection subject to downside risk. 

Brazilian Stocks Gain as Pension Reform Clears Major Hurdle; Andean Markets Fall as Trade Tensions Bite

  • Brazilian stocks added nearly 3%. The domestic Ibovespa benchmark index rose to a record after lawmakers in Brazil’s lower house overwhelmingly approved the base text of a pension reform bill, a major step in overhauling the country’s highly indebted social security system. At month‑end, Brazil’s central bank cut its benchmark Selic rate by an unexpectedly large 50 basis points to a record low 6.0%, its first rate cut since March 2018, as inflation stayed well below target.
  • Mexican stocks shed nearly 4%, weighed by preliminary data showing near‑stagnant economic growth. Mexico’s gross domestic product rose 0.1% in the second quarter from the prior three‑month period, beating forecasters who predicted that the country would fall into recession. However, the economy still shrank a worse‑than‑expected 0.7% from a year earlier and lagged the 4.0% annual growth target set by President Andrés Manuel López Obrador.
  • Andean stock markets fell, led by a nearly 6% decline in Peruvian stocks. Central banks in Chile, Colombia, and Peru left their respective benchmark interest rates unchanged. However, Chile’s foreign minister reduced the official full‑year growth target due to slumping copper prices, and central banks in Colombia and Peru slashed their respective 2019 growth targets—the latest evidence that global trade tensions were hurting the export‑driven region. 

South African Stocks Weaken as Eskom Concerns Grow; Turkish Stocks Gain on Risk Appetite

  • South African stocks declined as investors grew more bearish about the country’s fiscal outlook after the government announced a second multibillion‑dollar aid package for cash‑strapped utility Eskom, which Moody’s called “credit negative.” The warning from Moody’s, the only major ratings agency that still rates South African debt above junk, fueled concerns that the country would soon lose its last investment‑grade credit rating.
  • Russian stocks edged higher. Russia’s central bank cut its benchmark rate by 25 basis points to 7.25% and signaled further rate cuts as it forecast a return “to the neutral rate in the first half of 2020,” referring to its 6% to 7% target. The move marked the Bank of Russia’s second rate cut this year as domestic economic activity and inflation slowed.
  • Turkish stocks surged more than 11%, aided by a 4% gain in the lira, as appetite for higher‑yielding Turkish assets outweighed concerns about the country’s economic outlook and central bank independence after President Recep Tayyip Erdoğan fired the central bank governor and named his deputy as the replacement. Weeks later, the new governor slashed the central bank’s benchmark rate by 425 basis points to 19.75%, the biggest rate cut in at least 17 years, according to Bloomberg. 

Solid Fundamentals in Emerging Markets Offset Near‑Term Risks

We are optimistic about the long‑term outlook for emerging markets. Most developing countries have smaller current account deficits, larger foreign exchange reserves, and more flexible currencies than they did in previous decades, reducing the risk of a financial crisis. Compared with developed markets, most emerging markets have more attractive demographics and a stronger tailwind from rising consumption. Corporate earnings in emerging markets have recovered after years of disappointing performance, and valuations for many companies are attractive compared with their developed markets peers. Rising trade tensions and slowing global economic growth represent the most pressing near‑term risks. However, we believe that careful stock selection based on intensive research remains the key driver of long‑term performance as individual emerging markets countries and companies continue to show wide dispersion in their returns.

Additional Disclosures
MSCI and its affiliates and third‑party sources and providers (collectively, MSCI) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast, or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

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