July was a slightly strange month for global equity markets, with some regions strongly outperforming others. In particular, there was a sizable discrepancy between large-cap UK stocks and large-cap US stocks – measured by the FTSE 100 index and the S&P 500 index respectively – with the former declining -4.20% during the month and the latter climbing +5.64%. The difference in the two indices since 23rd March (i.e. the ‘bottom’ of the market during the coronavirus-induced crash) is shown below:
Although both indices have made significant gains since March, the S&P 500 continued to surge upwards during July, while the FTSE 100 faltered. This is largely due to the dominance of growth-orientated tech companies in the US. The big five – Amazon, Apple, Facebook, Microsoft and Google – now make up more than 22% of the S&P 500 index, helping to propel its returns to 46.2% since 23rd March.
The FTSE 100 index has also been negatively impacted by the recent strength of the pound versus the US dollar. During the month the pound appreciated +5.52% against the dollar – its biggest monthly gain since May 2009. The weakening of the dollar will have reduced the value of overseas income for many of the large, multinational companies within the FTSE 100 index, dampening its performance.
A full round-up of July market performance
In the UK, the FTSE 100 index declined -4.20%, while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index, slipped -1.20% and -2.41% respectively. In the US, the S&P 500 index lifted +5.64%, while in Europe the Eurostoxx 50 index dropped -1.52%. Japanese stocks measured by the Topix index fell -4.02%.
Emerging markets performed well during the month, with the MSCI Emerging Markets index gaining +8.21%. Latin American equities, measured by the MSCI Latin America index, increased +5.61% and Chinese stocks measured by the MSCI China index soared +9.33%. Indian stocks also performed well as the IISL Nifty 50 PR index rose +7.49%.
In the fixed income market, UK government bonds, measured by the FTSE Gilts All Stocks index, climbed +0.41% and long dated (over 15 years to maturity) gilts rose +0.48%. European corporate bonds, measured by the Markit iBoxx Euro Corporates index, returned +1.50% while sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, gathered +1.93%. In the high yield market, the Bank of America Merrill Lynch Euro High Yield index and the Bank of America Merrill Lynch Sterling High Yield index improved +1.78% and +1.71% respectively.
Commodities had a positive month. The S&P GSCI index, which consists of a basket of commodities including oil, metals and agricultural items, rose +3.80%. The recovery in oil prices continued, with the price of a crude oil futures contract jumping +5.27%. In the agricultural markets corn and wheat returned -6.86% and +7.88% respectively. However the big winners were the precious metals, as the S&P GSCI Gold and Silver indices delivered +8.55% and +29.95% respectively.
In the currency markets, it was a strong month for the pound as it appreciated +5.52%% against the US dollar, +3.48% against the yen and +0.62 versus the euro.