June Market Commentary

US stocks increased in June despite trade war fears weighing on stocks.  The Trump administration moved forward with tariffs of 25% on $50 billion worth of Chinese goods and China retaliated with the same level of tariffs on $50 billion worth of US goods.  The Trump administration is considering an additional 10% tariff on $200 billion worth of Chinese goods as well as limitations on Chinese investment in US tech firms.  Economic news was generally positive with 223,000 new employees added in May and the unemployment rate falling to 3.8%.  It’s the lowest level of unemployment since April 2000 and, for the first time since records were kept starting in 2000, there were more job openings than job seekers.  US auto sales rose in May over the previous year and US retail sales jumped 0.8%, the largest increase in six months.  On the downside, first quarter GDP was revised down to 2.0% from 2.2%.   For the month, US stocks gained 0.65%, bringing them up 3.89% for the second quarter.  For the year to date, they have risen 3.22%.

Foreign stocks declined over the month on trade war fears and weak economic news.  Business activity in Europe reached its lowest level in a year and a half in May. After earlier canceling the meeting, President Trump met with North Korean leader Kim Jong Un to discuss nuclear disarmament.  The ECB said it would end its bond buying program by the end of the year, but that it would not consider raising rates until September 2019.  The Bank of Japan elected to continue with ultra-easy monetary policies after its meeting.  A strengthening dollar and higher interest rates in the US have weighed on emerging markets as they have trailed developed markets in June and over the year to date.  International stocks declined 1.90% in June, and fell 2.54% over the second quarter.  Over the first half of the year, foreign stocks are down 3.65%.

Bonds treaded water in June with investors moving broadly to safe havens as trade war concerns increased over the second half of the month.  At the Fed’s June meeting they voted to raise the Fed Funds rate a quarter percentage point to a range of 1.75%-2.0%.  It’s the second increase this year and at the meeting they signaled they expected to raise the rate two more times in 2018. The 10-year Treasury yield ended the month at 2.85%, up slightly from 2.83% to start the month, and up from 2.40% to start 2018.  For the month and second quarter, longer-term bonds lagged shorter-term bonds, with government and muni bonds being the top performing sectors.  The broad bond market ticked down 0.12% in June, and decreased 0.16% over the second quarter. For the year to date, bonds have declined 1.62%.