Market Recap: July 2021

Many broad market indexes posted positive returns for the month of July with some U.S. indexes hitting all-time highs. However, recent trends favoring the ‘vaccine trade’ areas of the market have reversed for the month with energy taking a step back, large cap catching up and growth outperforming its value counterpart. These shifts in investor sentiment may be due to greater attention being paid to recent changes in COVID case counts as the delta variant takes hold. While investors should remain alert to these trends, we do not think these alone should call to action changes in portfolios.

Brief Market Recap

July was, on balance, a good month for investors as many broad market indexes across equity and fixed income posted positive returns. The S&P 500, the Dow Jones Industrial Average and the NASDAQ Composite each hit an all-time high during July reflecting general optimism around the path toward ‘normalcy’. However, underneath the surface investor hesitations were present. Winners since November 2020, following the creation of the COVID-19 vaccine, have generally been concentrated in areas left in the wake at the onset of the pandemic. This trend largely reversed in the month of July showing new, albeit short-term, leadership. Growth outperformed value, large cap outperformed small cap, the Energy sector (which has been leading all other U.S. sectors in 2021) was one of two sectors down in July, and long-term U.S. Treasuries (historically a safe-haven asset) rallied. If these recent shifts in investor interest indicate a broader cause for concern, there are likely a few circumstances worth highlighting. Rising concerns around inflation and the escalating trend in COVID-19 cases caused by the delta variant are commonly cited. We will now turn our attention toward recent trends relating to the COVID-19 delta variant and our thoughts regarding its potential impact on the investing landscape.

Delta Deluge

The delta variant, which was first discovered late last year in India, has become the most common source of new COVID-19 cases globally and in the U.S. accounts for 82% of new cases as of July 17, 2021. According to Yale Medicine, the delta variant is 50% more contagious than the original alpha variant which previously swept across the world. The data suggests that in an unvaccinated and unencumbered environment, a person infected with the alpha strain would infect, on average, 2.5 people. The delta strain’s infection potency increases to an average of 3.5 to 4 people. These greater transmission rates have stoked investor fears of a slower pace to which society returns to ‘normalcy’.  From June to July infection rates increased across all 50 states month-over-month, albeit from recently moderated levels. 

Case count and hospitalizations also rose, prompting many local governments to take additional actions to slow the spread and reduce the potential need for more drastic measures. In the short-term, markets may be particularly sensitive to this news given the challenges first encountered in March of 2020 (fresh in investors’ minds) and the high expectations for business and the economy in a post-COVID world.

Market Outlook

While investors should certainly remain attentive to recent trends in COVID-19, we note that the intersection of epidemiology and market prognostication should be an exercise filled with humility. As is the case with most manners of forecasting, the variables at play make short-term predictions very difficult. Investors are right to consider the rising case count and the potentially elevated impact that the delta variant (or any future variant) may have on the markets and the economy. However, investors also need to consider other factors prior to taking action, such as the likelihood of an intensified response from governments to support markets should restrictions again be required, how a new COVID-19 vaccine or booster could change the dynamics of new case counts, or the myriad of other related inputs that could swing investor sentiment. We suspect that investors may need to fully acknowledge and come to terms with the notion that COVID-19 (and its future variants) may not be a transitory issue. 

In response, portfolios should be constructed with resiliency to accept and withstand such disruptions in the future. With markets hitting recent highs, investors that have not revaluated their risk tolerance and objectives since the downturn in March 2020 may find it to be an opportune time to do so. 

Please let us know what else we can do to serve you. We are here for you and happy to just chat about what is going on in your world. We look forward to continuing to help all of our clients plan for and achieve their financial objectives.

US Capital Wealth Advisors, LLC (“USCWA”) is a Texas-based investment advisory firm registered with the United States Securities and Exchange Commission (“SEC”). As an independent, fee-only, registered investment advisor (RIA), USCWA is able to provide sophisticated, holistic wealth management services, with expanded access to investment solutions. We take our fiduciary responsibility to you seriously, which means we are committed to what is in your best interest. Our long-standing objective is to enable you to achieve your financial goals and to act as a trusted resource for you and your family. 

This material is for informational purposes only and is an overview of the capital markets and is intended for educational and illustrative purposes only. It is not designed to cover every aspect of the markets and is not intended to be used as a general guide to investing or as a source of any specific investment recommendation. Readers should conduct their own research before making any investments. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. In preparing this material we have relied upon data supplied to us by third parties. The information has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by US Capital Wealth Advisors, LLC, as to its accuracy, completeness or correctness. US Capital Wealth Advisors, LLC does not guarantee that the information supplied is accurate, complete, or timely, or make any warranties with regard to the results obtained from its use. Opinions included do not necessarily represent the views of US Capital Wealth Advisors, LLC. Please see USCWA’s ADV Part 2 for more information about USCWA.