Stocks were under pressure last week, as the S&P 500 fell by 1.33 percent to 2,718.37. That was the largest decline since early April but it still left the benchmark index up 1.67 percent year-to-date, and just 5.38 percent below the record closing high. As for performance during the volatile month of June, the S&P 500 managed to post a 0.48 percent gain, its third increase in a row and enough to result in a 2.93 percent quarter-over-quarter rise. That is a welcome turnaround following Q1’s -1.22 percent loss, the first quarterly decline for the broad index in almost three years. The gain during the past three months, though, might have been even better if not for the continued uncertainty surrounding U.S. trade policy. Indeed, stocks appeared eager to rally last quarter, as strong corporate earnings and a solid economic backdrop helped investors overlook a hawkish Fed determined to continue raising interest rates. Some major indices were even able to climb to new all-time highs recently, but escalating trade tensions have already erased a large chunk of those gains.
Further, only 28.45 percent of individual investors surveyed last week by the AAII said that they expect stock prices to rise over the next six months, the least bullish reading in two months. At the same time 40.80 percent of respondents said that they expect stock prices will fall during the next six months, a 14.62 percentage point jump from just one week earlier and the most bearish reading since April. However, the AAII researchers stressed that “at its current level, [investor] pessimism is unusually high (more than one standard deviation above its historical average),” and that historically the six-month returns for the S&P 500 index have been “slightly above their historical average” following such an elevated reading. That of course does not guarantee that stock prices will rise in the near future but any resolution to the latest trade disputes is a potential tailwind for equities. More importantly, the wild swings seen in the market last quarter could easily continue in the second half of 2018, which is why regular investors should try to ignore the day-to-day fluctuations in stock valuations and instead focus on the long-term goal of amassing a large retirement nest egg. Assistance with that endeavor is available through the consistent use of tax-advantaged savings vehicles, dollar-cost averaging, and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.
To recap a few of the things we learned about the economy last week, the positives included that the nation’s trade deficit narrowed, new home sales jumped, housing inflation moderated, personal income for Americans rose, and consumer spending increased. As for the negatives, mortgage and refinance applications decreased, pending home sales fell, first-time claims for unemployment benefits lifted, several gauges of regional manufacturing activity sent conflicting signals, demand for American-made durable goods softened, core capital expenditures declined, consumer confidence cooled, household inflation pressures firmed, and U.S. gross domestic product growth during the first quarter of 2018 was revised lower. This holiday-shortened week the pace of economic data slows down but there are still a few important reports on manufacturing and employment scheduled to be released, including the big June job report from the Bureau of Labor Statistics (BLS) due out on Friday. Further, the potentially market-moving minutes from the latest Federal Open Market Committee meeting will be released Thursday afternoon.
**A more detailed snapshot of the U.S. economy can be found here.**
What To Watch:
- Independence Day - Markets Closed
- MBA Mortgage Applications 7:00 AM ET
- Challenger Job-Cut Report 7:30 AM ET
- ADP Employment Report 8:15 AM ET
- Jobless Claims 8:30 AM ET
- PMI Services Index 9:45 AM ET
- ISM Non-Mfg Index 10:00 AM ET
- EIA Petroleum Status Report 11:00 AM ET
- 3-Yr Note Announcement 11:00 AM ET
- 10-Yr Note Announcement 11:00 AM ET
- 30-Yr Bond Announcement 11:00 AM ET
- FOMC Minutes 2:00 PM ET
- Employment Situation 8:30 AM ET
- International Trade 8:30 AM ET
- EIA Natural Gas Report 10:30 AM ET
- Baker-Hughes Rig Count 1:00 PM ET
Sources: Econoday, AAII, FRBSL
Post author: Charles Couch