June Market Commentary

Market Commentary

US stocks surged in June on a resolution to the debt ceiling standoff and positive economic news.  Stocks climbed early in the month with the Senate approving the debt ceiling bill, eliminating a fear hanging over the markets over the past several months.  Economic news was generally positive in June, showing the U.S. economy is holding up better than expected.  U.S. employers added 339,000 new hires in May, blowing past estimates for the 29th straight month of growth.  Average hourly wage growth also slowed, a positive for inflation.  On the downside, the unemployment rate rose to 3.7% in May from 3.4% the prior month.   First quarter GDP was revised significantly upward to 2.0% from 1.3%.  CPI rose 4.0% over the trailing year in May, the lowest level in two years, down significantly from the prior month.  Core CPI, which removes more volatile food and energy prices, has proven to be more sticky, however, rising 5.3% over the past year.  Producer prices rose just 1.1% over the past year dropping more than expected and near a two and a half year low.  Finally, the core personal consumption expenditures index, the inflation gauge the Fed prefers, was up 4.6% annually in May, slightly lower than expected.  US retail sales were up 0.3% in May, topping expectations of a decline.  Home builder’s confidence moved into positive territory for the first time in 11 months and new home sales in May had the largest percentage gain in over 6 years.  However, prices continued to ease, falling 3.1% from a year earlier.

Foreign stocks jumped in June on generally improving inflation numbers.  The Eurozone headline inflation rate continued to fall in June to 5.5%, below expectations, and inflation in emerging markets has eased.  However, inflation still remains higher than central banks prefer.  The ECB raised its benchmark rate a quarter percent to 3.5%.  After pausing for five months, the Bank of Canada surprised investors with a quarter percent interest rate hike.  Central banks in Switzerland, Norway, and Turkey all raised interest rates to continue the global inflation fight.  The Bank of England raised its benchmark rate by 0.5% in June as inflation in the UK continues to rise aided by a strong jobs market and wage growth.  Given slowing growth in China, the central bank announced a cut to its lending facility in the hopes of spurring economic activity.  Oil rose over the month gaining 3.7% to end the month at $70.64 a barrel, but is down 12% for the year.  Emerging markets trailed developed markets in June, the second quarter, and year to date.

Interest rates ticked higher in June as investors expected interest rates to remain higher for longer.  At the Fed’s June meeting, they elected to keep the fed funds rate steady in a range of 5.00% to 5.25%.  It was the first meeting without an increase since early 2022.  However, Federal Open Market Committee members penciled in at least two more quarter-point interest rate hikes before year end.  All major banks passed the Fed’s stress test helping ease banking industry fears.  The yield on the 10-year Treasury edged up over the month rising from 3.64% to 3.81%.  Corporate and muni bonds led the way in June, the second quarter, and the year to date.  Shorter-term bonds outpaced longer-term bonds for June and the second quarter, while longer-term bonds led the way over the year to date.