Equity markets continued their post-Liberation Day recovery, with the S&P 500 notching its first record high since February as investors increasingly look to put Trump’s trade war in the rearview mirror.
The blue-chip index gained +5.1% in June and is now up +6.2% for the year.
Smaller company stocks added another +5.4% this month, though the Russell 2000 index is still down -1.8% year-to-date.
International stocks ended a strong first half of the year with a +3.4% monthly gain, adding a whopping +19% through the first six months.
Bond markets rallied as inflation concerns eased with a second consecutive month of soft CPI data, sending the Bloomberg Aggregate Bond Index up +1.5% in June (+4% YTD).
Commodities ended the month up +2.4%, led by a volatile month for oil prices with escalating conflict in the Middle East. The Bloomberg Commodity index is up +5.5% year-to-date.
With a return to bullishness in equity sentiment, we have one change in our proprietary Three Dials allocation methodology, which we detail below:
The 89 trading days between record highs on the S&P marks the fastest ever recovery after a decline of at least 15%, indicating the swiftness with which enthusiasm has returned to equity markets.
With international equities also on a tear this year, our Momentum Dial has returned to a Positive position after three months at Neutral.
Despite the optimism in equity markets, economic data continues to lag, with weekly unemployment claims hitting a two-year high while new home sales saw their biggest monthly drop in over three years.
With the average consumer still feeling uncertain about the future, our Fundamental Dial remains in a Negative position.
Despite a fierce rally on the S&P, earnings growth expectations for Q2 have been cut in half, sending forward price-to-earnings ratios back toward recent highs after a brief reprieve. As such, our Valuation Dial stays Negative.
On balance, our composite positioning remains somewhat defensive, with one dial now in a Positive position but two dials remaining Negative.
Sources: Morningstar