Soft landing expectations dominated market sentiment in July. The lower-than-expected inflation print, resilient GDP data, and a robust employment picture supported markets, helping the rally broaden to include cyclical market areas. The S&P 500 posted its fifth consecutive monthly gain and market breadth continued to improve. This year’s laggards, small caps and value stocks, outperformed over the month. The energy sector also fared well as oil prices climbed amid tight supply. In line with expectations, the Federal Reserve (Fed) raised interest rates by 25bps. The treasury curve moved slightly higher, with the 10-year Treasury yield reaching 4% for the first time since the March banking crisis. Higher yields exerted pressure on Treasuries and longer duration fixed income. Looking forward, the fixed income markets will likely see some added volatility in light of the Fitch Ratings downgrade of the U.S. debt at the beginning of August.

International equities outperformed U.S. equities, supported by a weaker U.S. dollar. Emerging markets led the way returning 6.2%, while the MSCI ACWI ex U.S. returned 4.1%. Chinese markets experienced a notable rally, returning 10.8% in July, driven by policy easing measures and optimism regarding potential further stimulus.

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