June Swoon?
The S&P 500 Index managed a small gain in May, but now the calendar turns to June, a historically tricky month.
- Since 1950, June has been the 4thworst month on average, but it has been green five years in a row.
- Big market declines rarely start in June, while only December sees a larger decline on average when the month is negative.
- We discuss this misunderstood month in more detail today on the LPL Research blog, available at 1p.m. ET
Daily Insights
U.S. equities open marginally higher as crude oil extends rally
- The Dow Jones Industrial Average this morning is higher as we start June’s second trading day.
- European markets are fractionally higher through midday trading.
- Asian stocks finished lower as inflation in South Korea reached its highest level since 2012 amid recovery.
Crude oil up again
West Texas Intermediate (WTI) crude oil is up again today, after gaining 2.1% yesterday.
- Crude closed at its highest level since October 2018 yesterday, following the lead of many other commodities making new 52-week highs.
- The Organization of the Petroleum Exporting Countries (OPEC) decided to uphold its easing of cuts in June and July, sparking the recent strength. They are adding 700k/barrels a day in June and 850k/barrels a day in July.
- We continue to anticipate higher crude prices as the reopening takes place and overall commodities continue to trend higher.
Manufacturing expansion powers ahead, but supply chains still a problem
The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) for May came in at a robust 61.2, a slight advance from April and ahead of economists’ consensus expectation. (Above 50 indicates expansion.)
- The new orders sub-index, a leading indicator for future activity, were very strong at 67.0, just below a 17-year high.
- At the same time, delivery times were their longest since 1974, prices paid remained elevated, and the employment sub-index remained expansionary but hit a 6-month low.
- Production was at its lowest level in nearly a year, highlighting the impact of supply chain disruptions, but was still solid at 58.5.
- Overall, the report was positive, but manufacturing won’t be able to completely recover until supply issues are resolved.
Boring
If things have felt boring lately, that’s because they have been.
- The S&P 500 Index hasn’t closed up or down more than 0.22% for an incredible 5 days in a row.
- This is the longest such streak since late 2017.
- Is this the calm before the storm? No one knows, but be aware volatility works both ways and we could be due for a bout of it soon.
Technical update
Stocks were mixed yesterday, as the S&P 500 and Nasdaq fell slightly, while the Dow gained 0.1% and the Russell 2000 jumped more than 1%. Small caps have quietly outperformed large by about 4% over the past 3 weeks, but the Russell 2000 remains in a largely sideways short-term trend between 2085 and 2360. Our expectation remains for an eventual upside breakout.
Proceed With Caution in the Bond Market
LPL Research makes a case for higher long-term interest rates but argues that high-quality bonds can still play a pivotal role in mitigating equity risk. Learn more in this week’s Weekly Market Commentary.
Do You Have Your Mind Right?
On LPL Street View video, LPL Financial Director of Research Marc Zabicki lists three practical steps for mitigating the potential havoc irrational influences can have on investment decisions
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