With July in the books, investors experienced the negatives of what tends to be a weak seasonal period for the equity markets. The worst performing segment of the U.S. market continued to be the pullback in small company stocks as represented by the Russell 2000 index. Small caps declined 7.3% in July while the larger cap stocks represented by the S&P 500 Index fell 2.8%. Small caps are now down 4.2% year to date while the S&P 500 Index remains higher by 4.2%.
For the most part economic news this past week was positive. Probably the most positive report was the first read on second quarter real GDP that was reported at 4.0%. For many, including us at HORAN Capital Advisors, there seems to have been a bounce back in economic activity from the weakness experienced in the first quarter due to the extreme cold weather conditions across the U.S. at that time. We do expect, however, this snap back was not significant enough to expect this level of growth through the balance of the year. One article in our magazine covers some of the underlying concerns with the recent GDP report.
Lastly, economic reports for the coming week will be relatively light. Additionally, the pace of earnings reports slows with a number of the reports coming from companies less optimistic about growth prospects. As we have noted in several reports on our blog this week, much technical damage was done to the market this past week. The magazine highlights several indicators that indicate the market is at least oversold on a short term basis which could result in a market bounce this week. The key will be whether or not the bounce can carry forward to a continuation of this bull market.