Hello all - we hope your June was a good one.
After two months of solid gains, stocks finally took a turn lower in June. Actually, the Dow as up 2.5%, but the S&P was lower by 1.0%, and the Nasdaq, which has a higher concentration of tech stocks, fell 2.8%.
After two months of solid gains, stocks finally took a turn lower in June. Actually, the Dow as up 2.5%, but the S&P was lower by 1.0%, and the Nasdaq, which has a higher concentration of tech stocks, fell 2.8%.
Here’s a look at how the markets moved this month:
Here’s a look at how the various market sectors performed this month.
Volatility saw a little jump this month.
Oil saw another substantial drop this month due to the “peace talks” with Iran. We’ll have more on this later.
The end of June also marked the end of the second quarter, which was one of the best quarters in years. The Dow is up about 13%, its best quarter since 2022. The S&P is up 15% and the Nasdaq added 21%, which was the best quarter since 2020 for both of them.
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TECH STOCKS
The stocks in the tech sector were very interesting this month.
We’ve seen tech stocks rising very sharply over the excitement around AI. New phrases were coined, like the “Magnificent 7” stocks (or just “Mag 7”), which were the big tech names like Google, Microsoft, etc. They drove a lot of growth in the markets.
Now there’s a divergence brewing. These “Mag 7” stocks are spending massive amounts of money to build out their AI infrastructure, giving them the new moniker of “hyperscalers”. All that spending is going to the construction of data centers, buying computer chips, etc. There’s a question of the return these companies will get on their massive investment.
On there other hand are the tech companies that are getting paid from these hyperscalers. Semiconductor stocks have been a big beneficiary. The semiconductors (computer chip companies) have been on tear while the Mag 7 stocks have fallen sharply.
We’ve seen tech stocks rising very sharply over the excitement around AI. New phrases were coined, like the “Magnificent 7” stocks (or just “Mag 7”), which were the big tech names like Google, Microsoft, etc. They drove a lot of growth in the markets.
Now there’s a divergence brewing. These “Mag 7” stocks are spending massive amounts of money to build out their AI infrastructure, giving them the new moniker of “hyperscalers”. All that spending is going to the construction of data centers, buying computer chips, etc. There’s a question of the return these companies will get on their massive investment.
On there other hand are the tech companies that are getting paid from these hyperscalers. Semiconductor stocks have been a big beneficiary. The semiconductors (computer chip companies) have been on tear while the Mag 7 stocks have fallen sharply.
When looking at the Mag 7 stocks compared to the rest of the companies in the S&P 500, you can clearly see how much they have underperformed.
Such a large sell-off in these names makes them much more attractive for new investment.
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IRAN
Much of the performance of the markets this month was around events in the Middle East.
We opened the month with hostilities flaring yet again, and the markets moving lower. The announcement of a cease fire and the framework for a peace deal and reopening of the Straight gave markets a jolt higher.
While government officials stress that a ceasefire is in effect, no one has ceased firing. They stress that the Straight is open, yet ships are still being fired upon.
This has to be one of the worst ceasefire deals ever, but government officials seem hesitant to escalate anything over concerns of upsetting the market. The market doesn’t care who wins, just that the Straight remains open – and it seems like the government will do anything to keep the straight open.
This has to be one of the worst ceasefire deals ever, but government officials seem hesitant to escalate anything over concerns of upsetting the market. The market doesn’t care who wins, just that the Straight remains open – and it seems like the government will do anything to keep the straight open.
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FED
We had news out of the Fed this month, too.
This was the first Fed meeting for the new Fed chief, Kevin Warsh. He announced no new changes in policy, which was expected.
However, it was Warsh’s style that received the most attention.
Former Fed chief Powell oversaw a Fed that talked a lot to the public, but that boxed them in on a lot of their policies. The style of the new chief is the exact opposite. He spoke very little. The statement the Fed put out, for example, was the shortest in almost 20 years.
Former Fed chief Powell oversaw a Fed that talked a lot to the public, but that boxed them in on a lot of their policies. The style of the new chief is the exact opposite. He spoke very little. The statement the Fed put out, for example, was the shortest in almost 20 years.
The comments they did release signaled that no rate cuts should be expected any time soon. At the start of the year, investors were predicting two rate cuts this year. Today, however, investors see at least one rate HIKE. We find a hike extremely unlikely, but it’s interesting how much the sentiment has shifted.
Finally, we can’t forget that new Fed chiefs often have a lower market early in their term.
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INFLATION
Although oil prices have dropped sharply, inflation remains high.
Monthly inflation numbers remain very high.
When excluding food and energy (what economists call the “core” inflation), prices are up, too.
Here’s a look at the inflation level for businesses, which is very high.
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OTHER ECONOMIC DATA
Other economic data releases were mixed this month, though not as bad as they could have been.
Employment hasn’t been as bad as many had feared.
The amount of job openings is picking up, too.
The manufacturing sector continues to look solid, while the service side of our economy showed a slight improvement.
Retail sales showed a decent increase.
Durable goods were lower, but much of that was due to a large increase in aircraft orders the previous month.
Consumer confidence saw a slight tick higher, but still remains in a downtrend.
Finally, small businesses saw a slight decline in optimism.
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Where does the market go from here?
Stocks were very overvalued coming into June and finally reached a more reasonable level late in the month. Valuations got a little more expensive after the last few days of June, but remain at a more attractive level.
However, much of the direction of the market is coming from news in the Middle East, and the volatility in the region makes it a very difficult investing environment.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
