For the optimists among us, we were relieved to see some good financial news in June. U.S. stocks were up for the month and the quarter, although bonds didn’t fare as well. The S&P 500 defied recession fears and a U.S. banking crisis, staging an improbable 16% advance for the first half of the year, giving previously-bearish analysts a hard time predicting where equities will go next. The Nasdaq Composite powered ahead nearly 32% for its biggest first-half increase in four decades.
Market performance reflected positive economic news, with continued strong job creation, income and spending growth, and improving consumer confidence. Inflation, while still too high, is coming down; it reached its lowest level in quite a while last month. There’s real evidence that the Federal Reserve’s (Fed) interest rate policy is working, which could mean rates will stabilize at or close to current levels.
Supporting the good news in the markets: sales of new single-family homes rose for the third straight month after increasing 12.2% in May, with the median sales price of $416,300 for new houses sold. The advance report on the international trade goods balance for May showed a 6.1% decline in the trade deficit from the prior month: exports fell 0.6% while imports decreased 2.7%. The national average retail price for gasoline was $3.57 per gallon, just down slightly from the prior month but $1.30 less than a year ago. For the week ending June 24, there were 239,000 new claims for unemployment, a decrease of 26,000 from the previous week’s level.
For those investors betting the upward trend will continue over the next few weeks, they have recent history on their side. The S&P 500 has posted a positive return in eight consecutive Julys, and the tech-heavy Nasdaq 100 has climbed in July for 15 straight years.
Of course, there are still lingering risks. Inflation could again spike higher, driving interest rates upward and forcing additional increases by the Fed. Beyond our own borders, there is still war in Europe and the uncertainties about China. And some doubt the rally’s staying power. Analysts at UBS Global Wealth Management commented recently that the likelihood of a recession hinges most on monetary policy becoming more restrictive, “With stocks already priced for the near perfection of a soft landing, we see better risk-reward in high-quality bonds over equities.”
Wishing you continued good vibes as we reach summer’s mid-point. We are thankful to be part of your financial coaching team, and, as always, if there’s anything you need, please schedule some time with our office.
Large, primarily tech stocks were the name of the game in June. The S&P 500 and NASDAQ both posted impressive returns of 6.61% and 6.55%, respectively. Most of the return on these indices is attributed to a few prominent tech names like Apple, Google, Nvidia, and Tesla. The gains were fueled by the Federal Reserve pausing their rate hiking sequence, which signaled to traders that inflation is starting to come under control and that fewer rate hikes would be needed moving forward. The number of stocks that led the rally was small, and a large portion of listed stocks underperformed the index despite the large gains from the index itself.
In US sector performance, large-cap stocks (both value and growth) outperformed the rest of the market, while smaller stocks posted much less appetizing numbers on the month. Tech and consumer discretionary led the way with nearly double-digit monthly returns in both sectors. Typical recession-resistant sectors like energy, utilities, and consumer staples were some of the biggest losers, as it becomes more evident that investors are not yet worried, or at least not yet pricing in a recession. Oil also took a dive in June, dipping below 70 dollars a barrel on multiple occasions and closing the month at $70.64.
The Federal Reserve met on June 13 & 14 and decided to hold the federal funds rate at 5.00 – 5.25%. However, the committee said they are still considering future rate hikes, which indicates the hiking cycle is likely not ended. The market is currently pricing in a 0.25% increase in July. In addition, the debt ceiling debacle was (finally) resolved, ruling out the possibility of a US debt default. On the back of this news, bond yields were trading slightly higher to close the month, with the 2- and 10-year at 4.895% and 3.837%, respectively.
June’s economic performance mimicked May’s: inflation is on the way down, stocks have been rallying (although the rally is concentrated on a few prominent names), and the Federal Reserve has been doing what the market expects it to do. In addition, the labor market is still strong -- not many people are filing for unemployment and those who do tend to find new jobs quickly. Looking ahead, there’s a new dirty word on the street replacing “inflation”… it’s “recession.” This word drives investors toward larger companies with strong cash flows (and the faith of investors). Although there’s no definitive answer about whether a recession is coming, economic uncertainty is certainly on the horizon.
Whales and Seals Return at Levels
The largest animals on Earth are returning to coastal Californian waters in larger and larger numbers. According to a study published in Marine Mammal Science, the western Pacific population of these cetaceans has reached 97% of its pre-whaling population levels.
Through the combined efforts of multiple organizations, various policies have been put in place that have helped spur on the population rebound. For example, too many blue whales were killed every year by ship strikes, so shipping lanes were re-routed to avoid the areas where whales congregate.
Seals are also making a comeback, turning up on the beaches of Belgium for the first time in over a century. Click here to read the story, including links to other whale news.
THOUGHT FOR THE MONTH
Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.
Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.
NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.
S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.
S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.
S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.
S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.
S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.
S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.
S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.
S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.
S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.
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