The last day of the trading week was also the last day of the month and July turned out to be fairly rewarding for most US markets. The Nasdaq once again served as the pace car with a 2.8% gain. The S&P also logged a strong month, rising nearly 2%. However, small cap stocks showed some unfortunate divergence as the Russell 2000 fell 1.2% over the last 30 days.
In terms of news, we saw Q2 GDP come in slightly below expectations while the Q1 number was revised higher. In parsing the Federal Reserve's comments this week, the market still appears unconvinced that Chair Yellen & Co are soon to act on raising rates. While the most recent language did note the improving labor market conditions, other data was not as promising. We'll surely find out more in coming weeks.
Energy stocks continue to be the red headed step child of this market as it was another terrible month for crude oil and related companies. For July, crude was down 21% and fell more than 2% on Friday alone.
Last week we highlighted the lack of upside participation by various sectors in this market and still believe this will be an important factor to monitor in the final 5 months of the year. While its great to see the strong moves in health care and cyclicals, we'd like some other areas of the market to step up and provide some support. If either of these two leaders were to stumble, it would be tough for stocks to finally break out of this sideways range to the upside.
After again testing its 200-day moving average on Monday, the S&P 500 bounced hard and sits comfortably back above the 200 and 50 day, for now. Our Thursday post examined the concerning look of the Dow Industrials chart. The XLI (Select Sector SPDR Industrials ETF) is showing some signs of damage that investors would be wise to acknowledge. The index's 50-day moving average has crossed below its 200-day (a sign of weakness) and it recently failed to break back above what had served as prior support.