US markets closed higher for the fifth month although gains pared into the close while the NASDAQ composite actually closed lower. Overall, July has proven to be the strongest of the past five months as the Dow30 rallied 8.6% despite weakness that had the index lower through July 10. Better-than-expected earnings have largely fueled the optimism, along with indicators adding to sentiment that the worst of the crisis has long passed. On the year, the Dow is now higher by 4.50% while the NASDAQ, expected to lead as technology recovers quicker than the overall market, has gained more than 25%. Movement off the March 9 lows is even steeper, with the Dow having moved nearly 42% up. While the index is at its highest levels since early November, other indicators including volatility and trade have seen hardly the same improvement as equities. The CBOE volatility index fell last Friday to the lowest since prior to the Lehman Bankruptcy, but has since climbed to nearly the same at the start of July. Meanwhile, the Baltic Dry index, a measure of shipping costs for commodities, has remained well off its early June highs. Such figures show investors remain cautious on equities while actual economic conditions remain murky.
Dow Jones Daily Chart
Data today echoed concern as GDP came in better-than-expected  in the second quarter while consumption declined. As layoffs continue to mount, savings rate is expected to continue rising beyond its recent 15-year high at 6.9%, reported last month. With consumer spending accounting for more than two-thirds of the economy, improvement in sales is necessary for growth ahead. Gains in confidence, an early measure of potential spending has actually declined in the past two months, and, with loan rates back on the rise for the second week, recovery in housing remains at risk.
Currency markets, meanwhile, have seen the dollar weaker in July against major crosses and particularly against commodity players including Canada, Australia and New Zealand. Dollar index support at 78.3  continues to be tested as risk appetite remains strong. Should the level fail to hold, markets may continue their recent moves
Dollar Performance in Past Month