June 2021: 2nd Quarter Stock Market Commentary
Ethan Pollard | July 08 2021
Equities marched higher in June for a fifth consecutive monthly gain, as the global economic recovery continues to take shape. The S&P 500, a benchmark for large cap US stocks, gained +2.3% on the month and is now up +15.3% at the halfway point of the year.
Small- and mid-cap stocks advanced 1.9% in June per the Russell 2000 index, which is up +17.5% this year. Overseas equities fell -0.7% on the month, bringing the MSCI ACWI ex-US index return to +9.2% for the year. Fixed income markets continued to rally, despite indications from the Fed that rate hikes may resume earlier than initially anticipated in order to help combat a potential overheating of the US economy. The Barclays US Aggregate Bond Index was up +0.7% in June for a -1.6% return YTD. Gold sold off this month, with prices declining -7.2% for the month (-6.6% YTD).
We saw no changes in any of our proprietary “Three Dials” readings during the month of June, each of which are summarized below:
- Market Sentiment and Momentum: Positive
Despite a mid-month wobble in the aftermath of the Fed’s interest rate commentary, equities continue to hold firm to long-term support levels. With technical strength intact, our Momentum Dial remains in a “Positive” position.
- Economic Fundamentals: Positive
Led by continued strength in the labor market, US leading economic indicators eclipsed pre-COVID highs for the first time this month. While roadblocks remain to restoring the global economy to full health, there is little doubt that prospects continue to improve, and our Fundamental Dial remains in a “Positive” position through the end of Q2.
- Valuation: Negative
We remain wary of equity valuations in this current environment, which could hamper stock returns despite a resurgence in earnings. Based on lofty valuations compared to historical norms, our Valuation Dial sits in a “Negative” position at this time.
On balance, our Three Dials composite reading takes a “Cautiously Optimistic” view into the second half of the year, as strong showings in the areas of Momentum and Economic Fundamentals are balanced by Valuation concerns.
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