Stock markets declined globally in July. The S&P 500 Index fell -1.4%. It was the first down month for the U.S. market since January and only the second monthly loss in the last 11 months, which demonstrates how calm U.S. markets have been recently. Overseas, the MSCI EAFE Index dropped -2.0%. Europe, which is our main focus abroad, declined -3.8%.
The current bout of European weakness relative to the United States began in May, so July represented the third consecutive month of underperformance. The region has yet to trigger a sell signal within our discipline, but continued weakness may lead to that soon. While valuations in Europe still remain attractive, we need the performance momentum to improve soon to justify investment there. Cheap valuations are always appealing, but investing on value factors alone can often take years to pay off if it ever does at all…
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