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Best July for Dow Since 1989

The Heat is On!

As highlighted yesterday, the stock markets have been on fire this July, turning up the summer heat with the Dow and S&P now on pace for their best July in twenty and twelve yearsrespectively. For the month (as of the close today), the Dow was up 8.6%, the S&P was up 7.4%, and the Nasdaq is up 7.8%.

While the summer rally has been fairly broad, leading the advance have been the cyclical stocks. Investors are banking that many of these industrials, materials, and tech companies will be among the biggest beneficiaries of a forthcoming economic recovery.

Over the past month, the Morgan Stanley Cyclical Index (.CYC) has risen 23 percent, far outperforming the mere 6-percent gain in defensive stocks, represented by the Morgan Stanley Consumer Index (.CMR). This trend is clear in the Dow Industrials too. The best performing stock in the Dow this month: construction and mining equipment manufacturer Caterpillar (CAT), which has soared 34%. The worst stock in the blue chip index: fast-food giant McDonald’s (MCD), which is down 4% this month. In fact, McDonald’s is the only stock in the Dow that is in the red for July.

Other sector standouts this month: Airlines up 25%, homebuilders up 20%, materials up 14%, techs up 10%, industrials up 10%.

Slowly Climbing Back from the Steep Descent…

The strong rally this month has helped the markets regain a substantial portion of the losses incurred from the Lehman bankruptcy in September to current March bottom.

With the July gains, since the March low, the Dow is up 40% and the S&P is up 46%. The Nasdaq has outperformed both – soaring 57% during this time. In fact, with those gains, the Nasdaq is now only down 12% since Lehman’s bankruptcy. That’s notably better than the Dow and S&P, which are both still 20% off their pre-Lehman bankruptcy levels. Bottom line: the Nasdaq has now retraced nearly three-quarters of its post-Lehman losses!

…But Still Far to Go

Keep in mind, however, there’s still a bigger hole to dig out of when looking back at the October 2007 highs. From those market highs, the Dow is still off 35%, the S&P is down 37%, while the Nasdaq is sill 30% lower.

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