People on Wall Street love to come up with catchy phrases for investing themes. Last month was ‘sell in May and go away’. Now I’m seeing ‘June Swoon’. This is based on the historical trend that June is, on average, a flattish month and the fourth worst in terms of S&P 500 performance. June also marks the start of the weak summer season for equities. September is historically the worst month and August the second worst, followed by February for equities.
I anticipate the financial markets will be stuck in range through the summer, with equities potentially grinding slowly higher. Corporation earnings were quite strong for the 1st quarter of 2017. Additionally, companies reported stable or improving outlook for the balance of the year. That should support the equity markets. Having said that, the current environment is not without risks. One concern is that the bulk of the gains in stocks year-to-date have come from 2 sectors, Utilities and Technology. I would be more confident if more sectors, specifically financials, were showing similar gains. The other area I am watching is the bond market. Despite equities hitting all-time highs, the bond market is not as enthusiastic with the yield on the 10 yr US Treasury declining to a y-t-d low of 2.15% on 6/2/17. Lower yields reflect increased buying of bonds. Bonds are viewed as safer investments than stocks, so when bonds are being bought, it is generally an indication of concern from market participants. There are also political risks – Russia investigation, healthcare and tax reform, Federal Reserve increasing interest rates – that the stock market has mostly ignored so far. Despite these risks, I anticipate any pull-backs to be short and shallow.
I am also watching the economy closely. The May 2017 jobs report came in below expectation. There have been weaker reports on housing and auto sales recently. However, the 2nd estimate of 1st quarter GDP growth was revised up from 0.7% to 1.2% based on better consumer spending and business investment. Frankly, it is too soon to tell if the recent data reflects merely a pause in what has been one of the longest, albeit slowest, economic recoveries in history or the start of a worrisome trend. The chart below, courtesy of Raymond James & Associates, shows only 2 negative growth quarters since 2010. Presently, I don’t see any signs that would lead to a recession.
As always, I will let you know if any changes to your financial plan or portfolio are in order. Feel free to call me with any questions or concerns.
June Calendar of Events (comments and additions for future months are always welcome)
- June is LGBT Pride Month. Let’s all work towards acceptance and inclusion of people regardless of their sexual orientation.
- June is also National Safety month. Schools are closing for summer and folks will be outside more so be mindful on the roads. Perhaps take a first aid or CPR course.
June 14th Flag Day
June 19th Father’s Day – wishing all father’s, grandfathers, and great grandfathers a wonderful day.
June 20th Summer begins – let’s see what Mother Nature has in store for us
I hope you find this report useful. Please share it with anyone who you feel would benefit from the information.
Sources: Raymond James & Associates, CNBC.com