June Market Recap
July 1, 2021
Tech stocks are back!
You may not have noticed with the major stock benchmarks climbing steadily higher, but Technology had significantly underperformed through the first five months of the year. As of May 31, Tech’s year-to-date return ranked ninth out of 11 equity sectors in the S&P 500. That all changed in June.
Technology gained 6.9% last month and in doing so dragged the S&P to another positive monthly return. It’s now seven of the last eight months in which the benchmark index has risen higher. The NASDAQ surged 5.5% in June. The Dow was essentially flat.
Tech’s resurgence bucked one of the major financial trends of 2021; the rotation away from popular “stay at home stocks” (Tech was the best performing sector in 2020) toward more cyclical companies positioned to benefit more in a broad-based economic recovery.
Another trend – the steady increase in oil prices – remained very much intact and helped Energy (+4.5%) post the second-best sector performance in June. Crude oil prices have risen for five weeks in a row and have more than doubled since late October.
Five equity sectors were down last month with Materials (-5.5%) and Financials (-3.1%) struggling most.
|Index||June 2021||YTD 2021|
There’s something to be said for positive momentum. As has been the case for most of the year, it was more escalator than roller coaster for stock investors last month and that remains the case entering July as the S&P 500 finished June on a 5-day winning streak (five consecutive “up days”).
With the path of least resistance clearly leading stocks higher, focus has intensified on the potential disruptors that could stunt the rally. Most agree that inflation and less favorable Fed policy are the two most likely suspects.
The latest batch of inflation data released on June 10 was again hotter than consensus estimates. The Bureau of Labor Statistics’ consumer price index accelerated 5% compared to a year earlier. The previous monthly reading clocked in at 4.2%. Those like Federal Reserve Chairman Jerome Powell who have preached that inflation will be “transitory” may ultimately prove correct, but the pressure to act is still increasing for now.
Hyper-focus on the Fed caused the most noticeable selloff in stocks last month. The Dow fell 3.5% the week ending June 18, when Powell said the central bank was considering tapering its $120 billion per month of bond purchases. Every word tends to get scrutinized when it comes to “Fedspeak,” but it should be noted that no specific timetable was given as to when such tapering could occur.
Markets suggest any increases to the Fed Funds rate remain at least 18 months away (in 2023) and Powell’s track record makes it clear that not disrupting markets is a top priority. With that in mind, investors’ main takeaway should be that no significant policy changes are imminent. When the Fed does eventually get less dovish, any adjustments will more than likely be implemented at a snail’s pace.
The US dollar also spiked in the wake of Powell’s comments, while gold prices fell. Overall, gold decreased 7% in June. Bonds yields generally have been on a slow but steady decline since late March. Treasury yields finished June at 1.44% (down from 1.58% a month ago).
International stocks lagged a bit in June. Emerging Markets gained 1% but Non-US Developed equities fell 1.1%. Small-caps, meanwhile, had another solid month. The Russell 2000 increased 1.8% in June. Its 17% gain year-to-date is better than the S&P 500, Dow, and NASDAQ.
For those tuned in to political drama, it’s been a relatively sleepy summer in Washington thus far. President Biden did announce agreement with a bipartisan group of Senators related to $1 trillion of infrastructure spending, but the plan has yet to be approved by Congress and the water remains muddy for now as to what the final legislation will look like.
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