The Dow’s Hot July

Blue chip stocks have been on a tear this month.

The Dow Jones Industrial Average (Dow) has risen 2.8% in July, the best performer of the four benchmark stock indexes we track. As shown in the LPL Chart of the Day, The Dow’s Hot July, the Dow also posted three straight record closes (through July 15) for the first time since January 2018.

 

The Dow’s performance this month has been especially encouraging after a relatively muted start to the year. The Dow was the worst performer in the first half of 2019 among the benchmark stock indexes, and the index failed to post a record high in the first half of the year (the second time that’s happened since 2012).

To be fair, it was a tough environment for the Dow. Breakdowns in U.S.-China trade talks and signs of slowing global growth increased the negative sentiment for U.S. large caps. Then, the tide turned in June with Federal Reserve (Fed) rate cut speculation and a U.S.-China trade truce.

“Large cap companies in the Dow are more internationally exposed, so they tend to benefit as global economic sentiment improves,” said LPL Research Chief Investment Strategist John Lynch. “Progress in trade talks has alleviated trade tensions somewhat, and a Fed rate cut could provide an additional boost to global equity markets.”

Even though we’re neutral on U.S. equities as a whole, we slightly favor large cap stocks over small cap stocks, as we mentioned in our Midyear Outlook 2019. Large cap stocks could benefit from continued progress in U.S.-China trade negotiations, an aging business cycle, and a global economic rebound.

 

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This Research material was prepared by LPL Financial, LLC.

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