Major global equity markets saw mixed performance in July amid several bouts of volatility. Developed equity markets garnered an overall positive return, outperforming their emerging-market counterparts, which recorded a modest aggregate loss for the month. In the U.S., softening inflation data, and dovish comments from the Fed following its monetary policy meeting, bolstered hopes that the central bank will begin to reduce interest rates as soon as September. Investors rotated out of the mega-cap technology stocks that have led the U.S. equity market rally thus far in 2024, into shares of small-cap companies, which typically outperform large caps in declining interest-rate environments. Late in the month, the tech-heavy Nasdaq Composite Index and the broad-market S&P 500 Index recorded their steepest one-day declines in nearly two years. Consequently, the Cboe Volatility Index (VIX)—dubbed the “fear gauge” as it measures the constant 30-day volatility of the U.S. equity market—surged to a three-month high.

The Far East was the strongest-performing region among developed equity markets for the month, led by Japan. In a reversal of a recent upward trend, the Nordic countries recorded negative returns and were the worst developed-market performers, hampered mainly by a significant downturn in Denmark. The Jordan + Egypt + Morocco region comprised the top performing emerging market in July. The Gulf Cooperation Council (GCC) countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—also performed well due primarily to notable strength in the UAE and Qatar. In contrast, the Far East was the primary emerging market laggard due to weakness in Taiwan and China. Eastern Europe’s underperformance was attributable mainly to a downturn in Poland.¹

Global fixed-income assets, as measured by the Bloomberg Global Aggregate Bond Index, gained 1.1% in July. Mortgage-backed securities (MBS) were the strongest performers within the U.S. fixed-income market, followed by high-yield bonds, U.S. Treasury securities, and investment-grade corporate bonds. Treasury yields moved higher for all maturities during the month, with the exception of 1- and 2-month bills. (Bond prices move inversely to yields.) Yields on 2-, 3-, 5- and 10-year Treasury notes fell 0.42%, 0.36%, 0.33%, and 0.17%, respectively, in July. The spread between 10- and 2-year notes narrowed from –0.35% to –0.20% over the month, and the yield curve remained inverted.²

Global commodity prices, as measured by the Bloomberg Commodity Total Return Index, fell 4.0% during the month. The West Texas Intermediate (WTI) and Brent crude oil prices declined 4.5% and 4.9%, respectively, amid concerns that China’s slowing economy could hamper demand for oil in the second half of this year. The New York Mercantile Exchange (NYMEX) natural gas price tumbled 21.6% over the month due to relatively large inventories in the U.S., as well as worries that expected cooler weather in the Midwestern and Western U.S. in August could reduce demand for natural gas-generated electricity. The gold spot price rose 5.7% in July as rising geopolitical tensions in the Middle East led investors to seek “safe-haven” investments. Wheat prices were down 8.1% for the month due to relatively strong harvests (increasing supply) in the U.S., as well as a decline in exports from the country.³

As widely expected, the Federal Open Market Committee (FOMC) left the federal-funds rate unchanged in a range of 5.25% to 5.50% following its meeting on 30-31 July, but appeared to be open to a rate cut in September. In a statement announcing the rate decision, the FOMC commented, “Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.” The Fed’s characterization of inflation as “somewhat elevated” represented a more dovish tone. The FOMC reaffirmed its dual mandate of achieving both maximum employment and price stability, noting, “The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.” This language was a departure previous statements that the FOMC members were “highly attentive” to the risk of inflation.

At the end of July, the CME Group’s FedWatch Tool implied an 88% chance that the central bank will implement a 25-basis-point rate cut following its meeting on 17-18 September, and indicated that the probability of further 25-basis-point cuts at the November and December meetings were 66% and 65%, respectively.⁴ The FedWatch Tool provides a gauge of the markets’ expectations of potential changes to the federal-funds target rate while assessing potential Fed monetary policy actions at Federal Open Market Committee (FOMC) meetings.

On the geopolitical front, Israel took responsibility for the death of Fuad Shukr, a senior military commander for Iran-backed Lebanese militia Hezbollah, in retaliation for the bombing of a soccer field in the Israelicontrolled Golan Heights on 27 July, which resulted in the deaths of 12 children and teenagers. Additionally, Iran and Hamas blamed Israel for the assassination of Hamas political leader Ismail Haniyeh in Iran on 30 July. The events ignited concerns that the ongoing Israel-Hamas military conflict may lead to a wider war in the Mideast.

¹  All equity market performance statements are based on the MSCI ACWI Index. 

²  According to the U.S. Department of the Treasury. As of 31 July 2024.

³  According to market data from The Wall Street Journal. 

⁴  According to CME Group. 31 July 2024.

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