Another strong month for stocks with international leading the way.

2017 has been a strong year so far for all major asset classes. Stocks have been performing especially well since the start of the year and this trend continued in July. International stocks had the strongest performance this month:

  • Developed-market stocks (MSCI EAFE index) returned +2.88%.
  • Emerging-market stocks (MSCI Emerging Markets index) posted a strong +5.96%.

Domestic stocks were no slouches either. Large-cap stocks (S&P 500) returned +2.06% and small-caps +0.97%. Bonds had a modestly positive July as well. The Bloomberg Barclays Aggregate index was up +0.43% as 10-year Treasury rates inched down over the month. Remember, bond prices tend to rise as interest rates fall. The relative quiet in the markets also continued: The S&P 500 didn’t move by more than +/-1% on any given day in July.

Stocks give investors partial ownership of companies. What these companies earn is reflected in their stock prices. Toward the end of July, companies started to report their second-quarter earnings. So far, almost three-quarters of them have beaten their estimates. This trend is helping stock prices. In addition, blue-chip companies have increased dividends, which is the part of earnings that is paid to shareholders. This month’s sidebar looks at the role of earnings and dividends. It also explains why it’s important to be diversified rather than focus on dividends over earnings.

In July, growth stocks (which tend to be stocks of companies that pay smaller or no dividends) outpaced value stocks (which tend to produce more income). This stronger growth stock performance came with more volatility, however. The NASDAQ Composite index, which is dominated by growth stocks, saw moves of +/-1% on three days.

The economic environment at home and abroad remains generally benign. In the United States, economic growth continues at a steady, if modest, pace. In the second quarter of 2017, gross domestic product rose by +2.6%, its highest growth-rate in a year. The economy has now been growing almost continuously since 2009. Unemployment remains low by historical standards at 4.4%. In July, as expected, the Federal Reserve did not raise short-term interest rates.

U.S. investors in international stocks were helped by another down month for the U.S. dollar, which fell by over -3%. For European investors, stocks in the eurozone were nearly unchanged. But for American investors, eurozone stocks were up over +3%. Emerging-market stocks have seen 19 weeks of inflows and have risen strongly despite geopolitical concerns in several parts of the world.

What this means for you.

At Financial Engines, we build unique portfolios for your personal situation. This month, your portfolio will likely have had positive returns. The further you are from retirement, the more risk your portfolio tends to have. The riskier your portfolio, the higher this month’s returns as equities performed well.

However, when you have a higher exposure to riskier assets, you have a greater risk of dips in your portfolio when markets don’t perform as well. This is why having a risk level that fits your situation and your personal preference is so important. Contact an advisor or log in to adjust your risk tolerance or tell us about your planned retirement date.

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