Paul Tarins, RICP®,WMCP®,CSRIC™
Stocks entered another strong monthly performance this June, with the S&P 500 index (‘SPY’ ETF proxy) finishing +2.2% higher. The index is now up +15.2% for the year, concluding the strongest first-half performance for US stocks since 1998. Overseas issues struggled in comparison, hampered by a rising US Dollar. The strong result should not be surprising given the artificial closure of the economy early last year; markets continue to benefit with most of the country now officially back open for business. Sector-wise, we did begin to see some maturing in this newly-minted growth cycle with financials, energy, and real estate taking the lead over last year’s technology darlings. This transition has been violent at times, making the year surprisingly difficult for stock pickers even as the major indices have continued to march steadily higher.
On that note, June’s equity gains did not come easily. Midway through the month the Federal Reserve abruptly changed its tune on timing the reversal of its easy money policies. This caught markets off guard initially, sending the indices on a multi-day roller coaster ride. Eventually, however, calm came back into markets as the notion took hold that the indicated change may more realistically address inflationary threats down the road. Even there, concerns that have persisted throughout the first-half were somewhat ameliorated as growth reports came in slightly below expectations and select inflation “canary” commodities, such as lumber, appeared to peak in price.
The US Aggregate Bond index (‘AGG’) was also up a healthy +0.7% for June. This may seem contradictory given the accelerated taper talk, but is explainable by lowered inflation expectations. Nevertheless, fixed income as a group remains modestly negative on the year and the risk of modestly higher rates ahead persists. It is important for balanced investors to recognize the stark difference in asset class performances this year, as it means account performances realistically are going to fall somewhere in between. While a diversified account never performs as well as the top producing asset class for a given period, neither will it ever be the lowest! And, as a brief reminder, the “steady as she goes” result is what builds wealth over time with the least volatility possible.
Meanwhile, despite indisputable underlying economic and market strength, we recognize that volatility is exceedingly low at the moment. Unforeseen developments could cause a modest pullback in the months ahead as we transition into the lighter volume summer months. It is very normal for stocks to pullback a minimum of -6.5% each year, and we have yet to see that occur in 2021. As usual, we will carefully monitor markets, accordingly. For now, enjoy your Fourth of July holidays – we wish you a warm and wonderful start to the summer with family and friends as we celebrate our nation’s independence.
* Based on time-series data from CSI Data, Inc. Data deemed reliable, but not guaranteed. Past performance is no guarantee of future performance or profitability.
Paul Tarins is an investment adviser representative of and offers investment and advisory services through Portfolio Medics, a registered investment adviser. Nothing contained herein should be construed as a solicitation for investment advisory services. Sovereign Retirement Solutions and Portfolio Medics are not affiliated.