On the surface, markets appear to have been uneventful in July, with few sizeable moves over the month – the S&P 500 index was up 1.2%, MSCI World index of developed markets +1.8%, emerging markets +0.3%, and US Treasuries +2.1%. The most notable moves were in currencies, with the yen +7.3%, a sharp reversal of its previous weakness, while gold continued to rise, +5.2%. Beneath the surface, however, there was a major change in the underlying market narrative, to an increasingly cautious view of the US economy, and a growing concern that the Fed has left policy easing too late to prevent a big slowdown. This was the trigger for a meaningful setback in markets from mid-month, after Wall Street had hit yet another all-time high on 16th July, weakness which escalated into a full-scale risk-off sell-off globally in early August. Given that these events have overtaken much of the news in July, we cover in this month’s review the background to this particularly sharp and sudden correction in markets and how investors should interpret and react to the falls.
