Markets rotated rapidly over the course of July, causing volatility as many of the popular trades of the year reversed and areas of the market that had underperformed, such as small caps and the Japanese Yen, outperformed. A weaker than expected US inflation reading early in the month, combined with weaker US labour market data, meant that bond yields fell as investors moved to price in interest rate cuts from the Federal Reserve. At the Federal Reserve meeting at the end of the month, Powell’s comments further clarified that it is very likely that interest rates will be cut at the next meeting in September. Investors now expect at least one cut in September and are currently pricing four 25bps US rate cuts this year, which would therefore include a 50bps cut at one meeting.
Despite the volatility under the surface over the course of the month, global equity markets were flat. The Magnificent 7, the largest US stocks, underperformed, having been very strong over the course of the year. Over the month, our holding in the Pacific North American Opportunities fund outperformed, up over 5.5%.
Fixed income markets were positive in July and provided a diversifying effect against the volatility seen in equity markets. Holdings in UK and US inflation-linked government bonds rallied over the course of the month.
Within Alternatives, a holding in Tritax Bigbox REIT rallied, benefitting from the prospect of interest rate cuts in the UK whilst a holding in a broad commodity ETF underperformed.
Diversifying asset performance was mixed, as momentum-based strategies were weaker, but a holding in the Japanese Yen rallied over 5%, as the carry trade, where investors had sold the Yen to buy higher yielding currencies, unwound.
