July was almost a mirror image of June as the S&P 500 index gained 2.38%. With the exception of a small downdraft at mid-month, the market rode a smooth uptrend and did not have a lot of chop. In fact, both market choppiness and volatility were well below average for the month. Equity markets climbed a wall of worry including growing concerns about the Delta variant, a sharp selloff of Chinese tech stocks and inflation concerns. The resurgence in Covid-19 cases continued to drive concerns that the recovery may be muted. However, at least for now GDP growth of 6.5% annualized highlighted a continuing hot economy. The Fed made no changes to monetary policy at its July meeting with Federal Reserve chairman Jerome Powell sticking to his script by assuring investors that the current inflation numbers are transitory.
Our hybrid momentum model posted a negative return as it spent the majority of the month short. Our counter-trend models posted slight gains for July in spite of below average levels of market choppiness and volatility. These models thrive on noisy, volatile markets so it was impressive they were able to gain ground. Our relative value model had a rough July as volatility spiked around mid-month and remained relatively high for about a week. Our model was short for this spike and suffered the bulk of its losses during this period. The weak performance in the relative value model was enough to cause our diversified portfolio to suffer over a 4% loss for the month. Overall, the models are working as expected and we are confident they will post solid investment results going forward.