Last week was a fun week in the markets. One catalyst was that inflation continues to fall, with some of the best inflation readings in a few years. In addition, some of the early corporate earnings reports for the second quarter came in much better than expected. Stronger economic growth is also expected. In the end, the global equity market was up about 3.5% for the week. Nearly all major asset classes were higher, with the one notable exception being the U.S. dollar which was down by over 2%. In turn, given the dollar weakness, while the U.S. market was up over by 2%, international markets were up nearly 5%.
The dollar is now down nearly 8% over the last 12 months, while non-US stocks are now up nearly 21% over the last year, just like the S&P 500. What might surprise some is that while US growth stocks have been on a tear, and indeed a 23%+ return over the last year proves that, developed international stocks (as defined by the EAFE index) are now up nearly 27% over the same time frame. It’s all a bit stunning to think how strong returns have been given how persistently negative investor sentiment was up until a month ago and how recession fears dominated. This all said, so what, now what? Well, last week was fun, but it would be reasonable for the stock market to take a breather. From a seasonal perspective, we just finished what is typically one of the stronger times of year for market gains. Also, in the technical parlance, the market is "overbought". A pause to refresh would be healthy for the market.
Stay invested. Stay diversified. Stay disciplined.