US stocks rise despite a month-end decline.

What happened.

US stocks closed July higher, with large-caps up 1.44 percent and small-caps up 1.14 percent (S&P 500 and 600 indices). They would have closed considerably higher if the month had ended on the 30th. But the 31st saw large-caps decline by 1.09 percent, the only burst of market volatility in July.  International stocks didn’t fare so well.  Developed-market stocks were down by 1.27 percent and emerging-market stocks by 1.22 percent (MSCI EAFE and Emerging Markets indices).  The stronger dollar accounted for these falls from a US investor’s perspective: when the dollar is stronger, the value of foreign assets measured in dollars falls. Bonds rose modestly with the Bloomberg Barclays Global Index up 0.22 percent.

Why it happened.

July was the beginning of “earnings season,” the period in which companies report their financial results for the second quarter of the year.  About three-quarters of companies who reported earnings in July beat expectations—and as a result investors revised their expectations of companies’ future prospects, immediately sending prices higher.

While GDP growth for the second quarter was lower at 2.1 percent than it was for the first quarter, it remained solid.  Employment remains strong, and consumer sentiment rose.

Central banks played an important role in markets this month.  In the Eurozone, the UK, and the US, central banks indicated that they are standing ready to use monetary policy to help their economies overcome challenges.  In this month’s sidebar, we examine what happened on July 31st, the day on which the Federal Reserve reduced interest rates by 0.25 percent, as expected.  Markets fell, not in response to the anticipated cut, but to signals that future cuts are not certain.

What this means for you.

At Financial Engines, we build you a portfolio tailored to your situation.  Your portfolio will probably have only moved slightly in July, as international and domestic stocks headed in different directions.  Remember, it’s best to keep your focus on your long-term goals.  Make sure you are comfortable with the amount of risk you’re taking and keep us informed of any changes to your situation, so we can make adjustments as needed.

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