July 2023 economic and market update

August 2023

Riskier assets continued to gain in July as economic data remained resilient while inflation receded. Except for commodities, most public market asset classes remained positive for the year, with US equities leading the way.

  •  After a pause in June, the Federal Reserve increased interest rates in July by 0.25% to a range of 5.25% – 5.5%, the highest level in over two decades. Markets are largely expecting that this will be the Fed’s final rate increase
  • US equity markets (Russell 3000 index) continued to rise in July (+3.8%), bringing the year-to-date gains to 20.3%. The technology sector remains the key driver of results this year, helped by artificial intelligence optimism.
  • Non-US developed equity markets also rose in July (MSCI EAFE +3.2%), but they continue to trail US markets year-to-date (15.3% versus 20.3%)
  • Emerging market equities had the strongest results in July, gaining 6.2%, driven by optimism over additional policy support in China. They continue to trail developed market equities year-to-date though, returning 11.4%, due partly to China’s weak results for the period.
  • Generally, corporate bonds outperformed government bonds for the month on continued risk appetite. Overall, interest rates increased slightly in July, leading to a small decline in the broad US bond market (-0.1%). The index remains positive (+2.0%) year-to-date on declining inflation and expectations for the Fed to end their rate hikes soon.

This year, the paths of inflation and monetary policy, slowing global growth, and the war in Ukraine will all be key.

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