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stock market tickerU.S. stocks continued their upward march in July, shrugging off political upheaval in Washington D.C. and the failure of the Senate Republicans’ proposed Affordable Care Act replacement. The market has had positive gains every month so far this year, tallying an 11.5 percent gain through the first seven months of 2017 (Vanguard 500 Index).

Equity markets have been buoyed by strong sales and earnings for S&P 500 companies. A recent FactSet report noted mid-single digit topline growth and that nearly 75 percent of companies have reported sales higher than analyst estimates (which is the highest level since FactSet started tracking this back in 2008). The storyline could change as roughly 40 percent of companies still need to report second quarter earnings; however, year-over-year growth will likely be robust given year-ago comparisons were some of the lower numbers in recent years and should be easy to beat.

The CBOE Volatility Index, commonly known as the VIX, recently hit lows last seen in December 1993. As we discussed in our second quarter commentary, many market participants use the index to measure investor sentiment, as it’s frequently called the “investor fear gauge.” The VIX measures investors’ current expectations about volatility over the next 30 days. Suffice it to say, investors expect the month of August to be historically calm.

International stocks continued their strong recent performance (in both absolute terms and relative to U.S. stocks), aided by a weakening U.S. dollar. European stocks gained 2.8 percent in July and are up 20.6 percent this year (Vanguard FTSE Europe ETF). Emerging-market stocks increased 5.3 percent in July and have now gained 21.2 percent so far in 2017 (Vanguard FTSE Developed Markets ETF). The U.S. dollar index (DXY Index) fell roughly 3 percent during the month and is down 9 percent for the year so far.

Bond markets were calm during July. The 10-year U.S. Treasury bond yield ended the month unchanged, spending most of the month oscillating around 2.3 percent. Credit spreads continued to narrow, which aided credit corporate bond markets relative to the U.S. Treasury market. The Vanguard Total Bond Market Index gained 0.4 percent in July, while the U.S. high-yield bond market rose 1.2 percent (BofA Merrill Lynch U.S. High Yield Cash Pay Index).

In late July, the Federal Open Market Committee (FOMC) decided to maintain the federal funds rate at the current target range of 1–1.25 percent (as the market expected). The Federal Reserve has hiked interest rates twice this year and has now raised short-term rates three times since last December. The fed funds futures market is putting less than a 50 percent chance on the Fed raising rates a third time in 2017. The one bit of news from the July FOMC statement was that the Fed said it expects to begin shrinking its $4.5 trillion balance sheet “relatively soon.” (These are the Treasury and mortgage-backed bonds the Fed purchased in their quantitative easing programs.) However, they left themselves some wiggle room to delay should the economy not move forward as they expect.