July 2009 will go down in history as one of the best July stock market rallies and, more importantly, our broadly diversified multi-asset class strategy performed extremely well. All major stock asset classes, except real estate, performed better for both the month of July and year-to-date than US large company stocks as measured by the S&P 500. For the year-do-date thru July 31, the S&P 500 is up about 11% but international emerging markets are up about 55%, international value style stocks are up about 25%, international stocks up about 18% and the DFA US Small Cap Value and Micro Cap funds are up about 15%. So much for the old saying, “Sell in May and go away.”
From a low on March 9, 2009 to July 31, 2009, the S&P 500 is up almost 45%. While still down about 37% from its peak on October 9, 2007, volatility happens on the upside too and is a clear argument against trying to time the highs and lows of the stock market. Raise your hand if you thought in March that stocks would be up 45% within 5 months! From its recent peak on October 9, 2007 to its recent low on March 9, 2009, the S&P 500 fell over 56%. Ouch! Mathematically, that means it must go up almost 130% just to break-even. According to The Wall Street Journal, there have been 7 recessions (not counting this one) since 1960. In the 12 months from the midpoints of those recessions, the S&P 500 rose 17% on average. If this recession ended in June 2009 (the WSJ cites that most economists predict Gross Domestic Product will grow in the third quarter), then the midpoint of this downturn would be September 2008. In the ten months since then, the S&P 500 is actually down about 14%. So, after considering the uncertainty of using averages, there is potential for a further rebound from here. Some economic measures are appearing to bottom out. U.S. manufacturing activity, as measured by the Institute for Supply Management, declined at its lowest rate since August 2008. So down, but recovering. In this index, anything under 50 is contracting and above 50 is expanding. The actual index was 48.9 in July vs. 44.8 in June. This is the highest production level in two years after hitting a 28 year low of 32.9 in December 2008. Construction spending rose for the second time in 3 months in June. New US home sales jumped 11% in June. Existing home sales were up in volume, but down in price with a median sales price of $206,200 that was 12% lower over one year.
As always, your trust and confidence are important to us and we appreciate the opportunity to serve you! Please contact us with any questions you have.
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