In this month’s recap:
Stocks, gold, and oil all surge, a door opens for U.S.-China trade talks to resume, and the Federal Reserve suddenly sounds dovish.
THE MONTH IN BRIEF
You could say June was a month of highs. The S&P 500 hit another record peak, oil prices reached year-to-date highs, and gold became more valuable than it had been in six years. (There was also a notable low during the month: the yield of the 10-year Treasury fell below 2%.) Also, a door opened to further trade talks with China, and the latest monetary policy statement from the Federal Reserve hinted at the possibility of easing. For most investors, there was much to appreciate.1
DOMESTIC ECONOMIC HEALTH
On June 29, President Trump told reporters, gathered at the latest Group of 20 summit, that he and Chinese President Xi Jinping were planning a resumption of formal trade negotiations between their respective nations. Additionally, President Trump said that the U.S. would refrain from imposing tariffs on an additional $300 billion of Chinese goods for the “time being.” A six-week stalemate in trade talks had weighed on U.S. and foreign stock, bond, and commodities markets in May and June.2
The Federal Reserve left the benchmark interest rate alone at its June meeting, but its newest policy statement and dot-plot forecast drew considerable attention. Among seventeen Fed officials, eight felt rate cuts would occur by the end of the year, eight saw no rate moves for the rest of the year, and just one saw a 2019 hike. The policy statement also removed reference to the Fed being “patient” about its stance on interest rates, and it mentioned economic and political “uncertainties” that may affect its near-term outlook. Stocks climbed after the announcement, and futures traders saw increased chances of a rate adjustment in either the third or fourth quarter.3
Fed Chairman Jerome Powell also moved the market on two other occasions during June. On June 4, stocks had their best day since January after he noted that the Fed was keeping a close eye on trade and tariff issues and would “act as appropriate to sustain the expansion” of the economy. Stocks had their poorest day of the month on June 25 after Powell commented that there was no need to “overreact” to a “short-term swing in sentiment” or incoming data.4,5
Some of the latest data seemed to hint at economic deceleration. The much-watched Institute for Supply Management Purchasing Managers Index for the factory sector fell to a 19-month low of 52.1 in May. The latest Consumer Price Index showed less inflationary pressure; it had advanced 1.8% in the 12 months ending in May, falling short of the Fed’s 2% target. The annualized pace of wholesale inflation dropped from 2.2% in April to 1.8% in May. Perhaps, most importantly, the economy added only 90,000 net new jobs in May, down from 205,000 a month before. (The main unemployment rate stayed at 3.6%; the U-6 rate, a broader measure which includes the underemployed and those who have dropped out of the job market, descended 0.2% to 7.1%.)6,7
Additionally, consumer confidence slipped. The Conference Board’s monthly index went from 131.3 in May to 121.5 in June (admittedly, the index had climbed higher for three consecutive months). The University of Michigan’s Consumer Sentiment Index treaded water, ending June 0.3 points above its previous reading.8,9
There were also encouraging signs, however. Retail sales rose 0.5% in May, according to the Census Bureau, and the Department of Commerce recorded a healthy 0.4% May advance for personal spending. The ISM’s non-manufacturing PMI rose 1.4 points to 56.9 in May.7,9
Early in the month, it seemed that trade negotiations between China and the U.S. were stalled. At the start of the month, President Trump proposed assessing tariffs on $300 billion more of Chinese imports (and he also talked of imposing a 10% tariff on all imported goods from Mexico, though this did not happen in June). Some optimism returned for investors when a meeting between President Trump and Chinese President Xi Jinping was scheduled for the month-ending Group of 20 summit in Japan.8
REAL ESTATE
Mortgage rates fell in June. By the June 27 edition of the Freddie Mac Primary Mortgage Market Survey, the average interest on a 30-year, fixed-rate home loan was 3.73%, compared with 3.99% on May 31. Rates for 15-year, fixed loans also descended in this timeframe, from 3.46% to 3.16%.17
30-year and 15-year fixed rate mortgages are conventional home loans generally featuring a limit of $484,350 ($726,525 in high-cost areas) that meet the lending requirements of Fannie Mae and Freddie Mac, but they are not mortgages guaranteed or insured by any government agency. Private mortgage insurance, or PMI, is required for any conventional loan with less than a 20% down payment.
The latest data on home buying came from May. Existing home sales rose 2.5%, according to the National Association of Realtors – a nice change from the 0.4% decline in April. New home sales, unfortunately, slid 7.8% during May, and that followed a 3.7% April retreat.7
Home prices flattened in April, according to the S&P/Case-Shiller 20-City Composite Home Price Index. (Data for May arrives in July.) In year-over-year terms, prices were up 2.5%.7
Lastly, housing starts weakened 0.9% in May, according to the Census Bureau, but the pace of building permits issued increased 0.3%.7
LOOKING BACK AND LOOKING FORWARD
The S&P surged 6.89% in June. The Dow Jones Industrial Average added 7.19%; the Nasdaq Composite, 7.42%. As the closing bell rang on the last market day of the month (June 28), the S&P settled at 2,941.76; the Nasdaq, at 8,006.24; the Dow, at 26,599.96.18,19,20
Prices of longer-term Treasuries rose in June, and correspondingly, their yields fell. On the first market day of the month (June 3), the yield on the 10-year note dipped under 2%; that had not happened since November 2016.21
All this greatly improved the year-to-date performance for these benchmarks. At the June 28 close, the S&P 500 was at +17.35% on the year; the Dow, +14.03%; the Nasdaq, +20.66%.18,19,20
This month, the current U.S. economic expansion became the longest on record. The economy grew 3.1% in the first quarter, by the assessment of the Bureau of Economic Analysis; the BEA’s initial estimate of Q2 economic growth is scheduled to appear July 26. The Federal Reserve’s next monetary policy meeting concludes on July 31.5,9
Disclosures
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Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. 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