US stocks sharply declined in June to end a brutal second quarter and the worst first half of a year in over fifty years. Inflation and the potential of an economic slowdown or recession remain front and center for financial markets. Earnings for S&P 500 companies continue to be strong, with the majority of the companies beating Q1 estimates. Economic news was mixed over the month. US employers added 390,000 jobs in May, beating the estimated 325,000 economists had forecasted. The unemployment rate held steady, for the third consecutive month, at 3.6% in May. US consumer spending increased by 0.2% in May, the smallest increase of the year. US manufacturing activity slightly increased in May remaining at the lowest levels since late 2020. CPI increased by 8.6% in May, higher than the expected 8.3%, marking its largest annual increase since December 1981. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 6.3% in May from a year earlier, the same increase as in April. The producer price index rose 0.8% in May as expected, above the 0.4% increase in April. Sales of existing homes fell in May by 3.4% as surging mortgage rates slowed sales.
Foreign stocks also fell sharply in June as concerns of a global economic slowdown sent foreign markets lower, however foreign stocks have outpaced domestic stocks for the second quarter and year to date. The European Central Bank (ECB) laid out plans to increase its key rate, for the first time in more than a decade, by a quarter percentage point to minus 0.25% at its July meeting and increase it again in September, possibly by a larger amount. The ECB will also end its large-scale bond-buying program on July 1. The eurozone’s headline inflation rate hit 8.1% in May, higher than April’s 7.4%. Inflation in the U.K. climbed to 9.1% in May and the Bank of England (BOE) expects it to move above 11% before it peaks. The BOE raised its key interest rate at a fifth consecutive meeting, from 1% to 1.25%, and the central bank indicated larger moves might be warranted. China’s inflation, which is much lower than developed countries, came in slightly below expectations, increasing by 2.1% in May from a year earlier. Chinese retail sales declined 6.7% in May from a year earlier, beating estimates and an improvement from the 11% decline in April. Oil prices ended the month at $105.76, down 7.77% for the month. Emerging markets outpaced developed markets in June, the second quarter and the year to date, but developed markets outpaced over the trailing year.
Interest rates increased in June pushing bond prices down for the month. The Fed increased its benchmark rate at its June meeting by 0.75%, the largest increase since 1994, to a range between 1.5% and 1.75%. New projections from Fed officials show the Fed plans to raise the fed funds rate to at least 3% by the end of the year. Fed Chairman Powell said he doesn’t expect moves of this size to be common, but indicated a 0.5% to 0.75% increase seemed most likely at their July meeting. The yield on the 10-year Treasury ended June at 2.93% after coming close to hitting 3.5% intra-month. June’s yield was slightly higher than the 2.84% yield at the end of May but much higher than where it started the year at roughly 1.5%. The rate for a 30-year fixed-rate mortgage jumped to 5.78% up from 5.1% in May. Municipal bonds were the top performers for June and the second quarter, US Agencies bonds were the top performers for the year to date. Longer term bonds outpaced shorter term bonds for the month and second quarter, but shorter term bonds topped longer term bonds for the year to date.
|Index Performance||June||2Q||Year to Date||Trailing 12 Months|
|US Stocks (Russell 3000)||-8.37%||-16.70%||-21.10%||-13.87%|
|Foreign Stocks (FTSE AW ex US)||-8.54%||-13.56%||-17.95%||-18.64%|
|US Bond Mkt. (BBgBarc Int. Gov/Cred)||-1.11%||-2.37%||-6.77%||-7.28%|
|Municipal Bonds (BBgBarc 1-10 Yr Muni)||-0.37%||-0.57%||-5.03%||-4.92%|
|Cash (ICE BofA ML 3-Mo T-Bill)||0.02%||0.10%||0.14%||0.17%|