June 2015 Monthly Outlook – June Swoon?

Last month I wondered whether we would get May flowers?  This month’s question is do we get a June Swoon?

For the month of May 2015, the US equity market (basis S&P 500) managed to bloom a bit with a 1% gain for the month. On the fixed income side, US 10year Treasury rates crept up from 2.05% to 2.10%.  Both markets had been higher during the middle of the month, but some continued softness in economic data saw both stocks and interest rates decline into the end of the month.

On May 29, 2015 the Bureau of Economic Analysis issued their 2nd estimate of 1st quarter 2015 GDP (gross domestic product), which was a decrease of 0.7% – down from an original estimate of a 0.2% increase. The BEA indicated that the decrease was primarily due to negative contributions from exports, nonresidential fixed investment and state/local government spending. Exports were hurt by the strength of the dollar and fixed investment was likely hurt by the harsh winter weather.

Recognizing that GDP is a backward looking statistic, let’s look at where jobs are heading.  The April 2015 jobs report showed an increase of 223,000 jobs (source Bureau of Labor Statistics),  a significant rebound from March 2015.  As long as the US continues creating around 200,000 new jobs monthly, I expect gradual economic growth will likely continue. The May 2015 jobs report comes out June 5, 2015. Stay tuned.

June 15 chart 1

With the US equity markets hovering in record territory, some analysts are voicing concern that the market is “expensive”.  I too am concerned about this.  However, one needs to also consider value of stocks as compared to other options investors may choose from. The earnings yield (earnings divided by price) for the S&P 500 is currently around 4.85%. With the current level of interest rates around 2% on 10 year US Treasuries, stocks still look like a reasonable value versus bonds. See chart (courtesy of Quandl.com) of quarterly S&P 500 earnings yield from May 2000 through May 2015.

June 15 chart 2

The other consideration on equities is the trend.  So far the S&P 500 was up in May and is up for the year.  “Since 1929, there have been 39 years when the S&P 500 has returned gains simultaneously in May and year-to-date. In each of those instances, the S&P 500 averaged gains of 1.1 percent in June and 7 percent for the rest of year”  Bespoke Investment Group/CNBC.  While this is a compelling statistic, as NY Rangers fans learned last night, history doesn’t always repeat.

So will there be a June Swoon?  I don’t think so but I remain ever vigilant for any signs of a change in the economy and financial markets.

June Calendar of Events   (comments and additions for future months are always welcome)

  • June is Lesbian, Gay, Bisexual, and Transgender Pride Month.   Let’s all try to be more supportive of our LGBT sons & daughters, brothers & sisters, nieces & nephews, and all people regardless of their sexual orientation or gender identity.  I know I am proud of my family and friends.

June 14th              Flag Day  ~  Pres. Woodrow Wilson called for a day honoring the US flag and Pres. Harry Truman made June 14th officially Flag Day in 1949

June 18th              Ramadan starts ~  Ramadan is the holiest month in the Islamic calendar.  Let’s be tolerant of all religions and people

June 21st              Father’s Day  ~    President Lyndon B. Johnson declared the second Sunday in June as Father’s Day in 1966

June 21st              Summer Solstice ~  1st day of summer and the day with longest hours of sunshine in the Northern Hemisphere

June 29th              Feast of St. Peter ~   Jesus said  “And so I say to you, you are Peter, and upon this rock I will build my church” (Matthew 16:18)

Source: Riverfront Investment Group, Yahoo Finance, Bespoke Investment Group

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