Interactive Investor

Month in the Markets: US and European shares’ six-month hot streak

4th August 2021 12:07

Tom Bailey from interactive investor

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The highly cyclical financials and energy sectors both posted losses. 

US shares managed to climb higher for the sixth month in a row in July, with the S&P 500 Index clocking a monthly gain of 2.4%. The Dow Jones also ended July in positive territory, rising by 1.3%. Things were less positive when it came to smaller-sized equities. While the S&P MidCap 400 posted a small gain of 0.35%, the S&P SmallCap 600 lost 2.1%.

Driving this performance was a return of economic growth and Covid-19 scares amid the spread of the Delta variant. As a result, more cyclical mid- and small-cap stocks fell out of favour, while the tech and growth stock-heavy S&P 500 index paced ahead.

This could also be witnessed in the sector performance of US shares. The Information Technology sector recorded a gain of 3.9%, while Consumer Services (which includes many tech companies) rose by 3.6%. Meanwhile, the highly cyclical financial and energy sectors both posted losses. Energy was the worst hit, seeing a fall of more than 8%.

This dynamic was also evident in the performance of factor-based indices. The best-performing factor was growth, with the S&P 500 Growth Index rising by 3.8%. The S&P 500 Quality Index also outperformed, with a gain of 2.6%. Meanwhile, value stocks underperformed, with the S&P 500 Value Index gaining 0.8% and the S&P 500 Value Enhanced index falling by 1.4%. Value stocks have a lot of overlap with cyclical stocks.

In Europe, the picture was similar. The S&P Europe 350 Index hit another all-time high in July and finished up by 1.78% on the month. This was also the index’s sixth consecutive month of gains. The S&P United Kingdom, however, was almost flat, with a gain of just 0.1%. Equities in Switzerland, France and the Netherlands were among the best performers, with the three markets contributing more than half of the S&P Europe 350’s returns.

However, unlike in the US, European mid and small caps outperformed in July. The S&P Europe MidCap index returned 3.9%, while the S&P Europe SmallCap returned 2.7%. In terms of sectors, S&P Europe 350 Information Technology was the clear leader, with a return of almost 6%. Energy was the biggest loser, with the European energy index posting a loss of over 3%.

In terms of global indices, the S&P Developed Market Index saw a return of almost 2%. However, the emerging market index, the S&P Emerging BMI, saw a loss of almost 5%. This was largely driven by the sell-off in Chinese equities, as Chinese shares now dominate emerging market indices. The S&P China Index declined by 9% in July. This was due predominately to continued concerns about the government’s regulatory crackdown on Chinese technology and education companies.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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