Global markets finished July mostly higher. The MSCI International World Index advanced 1,7%.
The US market was supported by the rotation out of large-cap tech and growth into value and smaller caps. As such, and after driving the markets for much of the year, the Magnificent 7 started to lose some momentum as AI, one of the central themes of the market in recent months, came under some scrutiny, given the capex figures and return on investment.
The market also continued to examine earnings reports for signals about consumer health and to absorb the start of earnings season.
France’s and Japan’s positive influence
In Europe, the major stock markets were also in the green, helped by the results of the French elections, while the ECB left its monetary policy unchanged after cutting rates in June.
Lastly, Asian markets performed well overall. In fact, Japanese equities were one of the best-performing regional markets for the year to date in local currency terms to the end of July, up almost 20%.
Regarding the primary bond markets, the sentiment was generally favorable.
Volatility is back
Looking ahead, the latest events in the markets have raised some concerns and caused some precautions among investors. Volatility is back, and the sharp corrections in some assets make it even more critical to be very selective. In the long run, these types of movements are part of the market’s behavior and can generate some good opportunities.
In this particular, Japanese stocks suffered one of the sharpest pullbacks of all equity markets in the recent sell off. That move is also associated with extreme volatility in the yen, which has rallied against the US dollar over the past few days. The speed with which this has happened has likely caused some deleveraging and unwinding of carry trades. Japanese equities are cheap and we maintain our exposure to this market.
It's also important to reinforce that one of the best ways to reduce the impact of corrections and maximize your profits is to maintain a broad-based portfolio and prioritize a long-term strategy. See our suggestion here.