Investors needing a morale boost should just read the “July” column of their 401(k) statement. The rest of the 2022 entries are still too depressing.
Stocks rallied in July, a respite after months of declines. The average U.S.-stock mutual fund or exchange-traded fund rose 8.9% in the month, according to Refinitiv Lipper data. But for 2022 so far, through July, the funds are still down 14.4%. (Market indexes are little changed for August so far.)
Markets have been undercut by the weak economy and the Federal Reserve’s interest-rate increases, meant to tamp down inflation. But in July, the S&P 500 and the Dow Jones Industrial Average logged their best monthly gains since November 2020, at 9.1% and 6.7% respectively. Tech stocks helped the Nasdaq Composite Index rally 12%, its best month since April 2020.
Will it prove to be just a momentary bounce in a poor year? Most investors remain cautious about both the economy and the market.
Financial markets stabilized in July as investors “priced in ‘less bad’ earnings news and prospects for a less-aggressive Federal Reserve,” said
chief investment officer for Comerica Wealth Management. His commentary for the month was headlined “A Good Month, But….” Mr. Lynch noted that economic data remained weak, as recession fears escalated.
International-stock funds were up 4.9% in July, but are down 17.1% so far in 2022.
July 2022 fund performance, total return by fund type.
economist and portfolio strategist at New York Life Investments, said, “On the face of it, there’s not much to be happy about in the economy right now. The Fed just delivered another [0.75-point] hike, GDP contracted two quarters in a row, and so far this earnings season corporate guidance has been mixed.” So why did the market rally in July? The logic, said Ms. Goodwin, is that if the economy is slowing, “then inflation may become less of a concern and the Fed can slow its policy-hiking roll.”
“That said, this looks like a rally for the wrong reasons,” she added. She expects the relief to be temporary, amid “accumulating signs of an economic downturn.”
Bond funds rose in July but are still struggling for the year so far. Funds tied to intermediate-maturity, investment-grade debt (the most common type of fixed-income fund) were up 2.4% in the month but remain down 8.7% for 2022.
As performance has waned, corporate investment-grade debt funds (including both conventional mutual funds and exchange-traded funds) have suffered $113.8 billion in year-to-date outflows, says
senior research analyst at Refinitiv Lipper. “This figure would already break the annual outflow record by nearly $100 billion,” he says in a report. In contrast, such funds broke records for inflows during 2020 and 2021 (at $266.7 billion and $274.4 billion, respectively). But “if the tides do not turn quickly, IG funds will only log their second calendar year outflow,” writes Mr. Fischer.
Mr. Power is a Wall Street Journal features editor in South Brunswick, N.J. Email him at firstname.lastname@example.org.
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