Major stock indexes moved high in July, but not everyone shared in the wealth. While every stock had its own drivers fueling its rise or fall last month, some important overall trends emerged.
These four stocks had some of the largest moves in July, and they tell a story that investors should consider before making any portfolio allocation changes.
1. RTX Technologies
RTX (RTX -0.29%) is a leader in the defense and aerospace industries. A concerning bit of news drove the stock 16% lower following its quarterly earnings announcement. The company's financial results were fine relative to expectations, but RTX management disclosed a serious issue with one of the company's flagship aircraft engine production lines.
It looks like the problem is manageable without turning into a crisis, but RTX drastically cut its cash flow forecasts for the short term. The engines will be subject to a faster replacement cycle and extensive testing, and RTX will bear significant costs to accomplish that.
It's hard to tell what this fiasco's long-term impact might be, but there's some risk that RTX loses its competitive advantage if its reputation is damaged.
Image source: Getty Images.
2. KeyCorp
Shares of KeyCorp (KEY 0.62%) rose 32% in July, leading a big month for regional bank stocks. The banking sector was under extreme scrutiny following a crisis earlier in the year that saw the failure of SVB Financial's Silicon Valley bank. Rising interest rates and slowing corporate growth created a difficult environment for regional lenders, especially those with heavy concentrations of loans in unfavorable industries or geographies.
Banks generally impressed during earnings season, fueling investor optimism that the biggest macroeconomic threats were dodged for the moment. The S&P 500 Regional Bank ETF (NYSEMKT: KRE) also charged 18% higher in July, so the momentum was industrywide. The S&P 500 Regional Bank ETF is still down 17% year to date, and KeyCorp is down nearly 30% year to date. That indicates the recent bump is more a correction of previous concerns rather than a full-fledged charge higher. Many of the issues facing bank stocks are still present, even if the risks are diminished.
3. Coinbase
Coinbase Global (COIN 5.68%) stock charged 36% higher in July, extending a strong run of performance year-to-date. The company benefited from a partial recovery in the cryptocurrency markets, and it's also impressed investors with its ability to diversify its cash flow streams beyond crypto exchange fees.
July's spike was caused by a major regulatory victory, as the cryptocurrency exchange Ripple enjoyed a favorable ruling in its lawsuit with the Securities and Exchange Commission. This news drove crypto prices higher, and it also lifted stocks associated with crypto assets higher, such as Block and Robinhood Markets. Other financial exchanges, such as Tradeweb Markets and MSCI, turned in strong months during July, suggesting that broad-based trends were lifting many boats in the sector.
4. AT&T
AT&T's (T 1.02%) stock price dropped 8% last month, while its rival Verizon Communications (VZ 1.17%) tumbled 6.3%. Both companies have been struggling to find momentum thanks to competition, high capital expense requirements, and slowing revenue growth. Both stocks now bear 7.6% dividend yields, which are exceptionally high in today's market and suggest that investors believe that the payouts will drop or stagnate in the coming years.
These longtime blue-chip stocks were dealt another blow as investors learned that lead-sheathed cables might lead to serious liability issues and remediation costs. This is uncertain territory for these telecom leaders, and it's hard to make a compelling case today for either growth-focused or risk-averse investors. That excludes a wide cross-section of the investing public, so there aren't many bullish parties to buy AT&T right now.
Tying it together
July was a strong month in the market, but it's important to recognize the overall forces driving that performance. We're in the middle of earnings season, so company-specific news drove many of the biggest moves. That's particularly true for the stocks that dropped. Some of the biggest moves higher were connected to wider market trends, such as the regional bank recovery. There were also broad rallies that lifted stocks in the mining, specialty chemicals, agriculture, and hospitality industries. It's usually a positive indicator if gainers are riding wider trends while market losers drop on specific triggers.
July also saw the CBOE Global Markets Volatility Index remain around its lowest level of the year, and growth stocks modestly outperformed value. These are all signs of generally favorable market conditions, which should encourage bulls. There are still plenty of uncertain macroeconomic conditions that could prevent a true rally in the near future, but the situation is encouraging as we move into August. If you're a long-term investor, make sure that negative headlines aren't scaring you away from maintaining a responsible asset allocation to equities and growth assets.
