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Jittery June: Equity Market Volatility Continues as Worries Over Trade and Tariffs Ensue

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Summary

  • U.S. equities ended up for the month of June, as the U.S. economic expansion enters its 10th year. U.S. manufacturing data posted a smaller rate of growth as output and new orders increased at the slowest rates since November 2017.  Consumer and business spending have increased as the unemployment rate continues to fall (down to 3.8% in May) and wages increase (up 2.7% over the year).  Even after a decline in June, consumer confidence remains strong, though expectations of continued economic momentum waned.
  • International and emerging market equities again posted negative returns for the month, pushing year-to-date returns further into negative territory. International trade concerns were a factor in the decrease in business optimism as businesses worried about the potential impact of tariffs and trade wars.  Eurozone manufacturing remained in expansion, but slowed as PMI fell to an 18-month low during the month.  Export sales in China fell for the third month in a row amid the intensifying trade dispute with the U.S.
  • Fixed income investments ended the month relatively flat for investment grade bonds and up slightly for municipal and high yield bonds. The Federal Open Market Committee (FOMC) raised the federal funds rate by 0.25% to a target range of 1.75% to 2% at the June 13th  The yield curve continued to flatten as the spread between the 2-year and 10-year Treasury bond narrowed.  New high yield bond issuance has been low in 2018, forcing investors to buy in the secondary market and driving up prices.

 U.S. Equities

  • Broad U.S. stocks increased in June (up 0.7%) and remain positive on a year-to-date basis (up 3.2%).
  • Size – All capitalization levels (large-, mid-, and small-cap) performed in-line with each other (all up 0.7%) during the month, however, domestically oriented small-caps are leading on a year-to-date basis (up 7.7% vs. large caps up 2.9%)
  • Style – Growth stocks (up 1.0%) outpaced value stocks (up 0.3%) in June and continued to meaningfully outperform on a one-year basis (up 22.5% versus 7.3%, respectively).

 S&P 500 Sector Returns for June 2018:
Looking Ahead

  • The fundamental health of the economy remains strong despite headlines of tariffs and trade wars. Volatility in equity markets will likely continue as trade deals are renegotiated.
  • Successful long-term investors focus on their ultimate objectives and we believe this is achieved by investing in a globally diversified portfolio of stocks and bonds.
Sources: Morningstar, Inc., Barclays Capital, Russell and MSCI, U.S. Bureau of Labor Statistics, The Conference Board, IHS Markit, The Federal Reserve (central bank of United States), The Bureau of Economic Analysis (U.S. Department of Commerce) & U.S. Department of Treasury

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