Investing.com | Jul 01, 2019 06:30AM ET
Investors had to be thrilled by the stock market's performance in June. The S&P 500's gains were the best for the month since 1955. The Dow's monthly results were even better: up 7.2%, its best since 1938. As for the NASDAQ, it had its best June since 2000, up 6.9%.
Indeed, the equity market is up nicely for the year as well: the S&P 500 +17.4%, after a 3.8% second-quarter gain; the Dow was by 14.1% for the same period and the NASDAQ is higher by 20.66%. As well, futures trading suggests U.S. stocks will rally strongly on Monday, with the S&P 500 and the Dow possibly hitting new 52-week highs.
h2 Additional Volatility, More Abrupt MovesThere's lots for investors to love. Except the abrupt and often scary pullbacks that have erupted repeatedly over the last 18 months. These have resulted in declines of 20% or so in the fourth quarter of 2018 and roughly 7% just this past May.
Between the 2016 election and the end of 2017, the U.S. major indices saw just one down month. But, since January 2018, the S&P and NASDAQ have had six down months, the Dow, five.
As a result, the S&P 500's year-to-date gain at the end of June was lower than where the benchmark stood at the end of April. It's also possible there will be more volatility ahead, though not on Monday.
Currently, financial markets are being ruled largely by forces that have fueled quick moves up or down, including:
July will begin with the first three issues on hold, providing the catalysts for Monday's expected rally.
Still, any surface calm is belied by some unexpected results that could point to more deep-seated issues:
So what's ahead? That depends. First, on whether the events that create short, sharp swoons (tariff threats, military threats, nuclear threats) are minimized. Traders and their algorithms hate uncertainty.
The current situation is mostly favorable for stocks. Interest rates are lower. The 10-year Treasury finished the quarter at 2.0%, down 25% this year because of worries the global economy is slowing. The U.S. economy is growing at about 3% a year, to the impatience of the Trump Administration, but a recession doesn't seem likely.
The domestic unemployment rate, 3.6% in May, has fallen 64% since a 10% peak in October 2009. Initial jobless claims have fallen by two thirds since their March 2009 peak.
Big companies are continuing to buy back their stock, which spreads earnings across fewer shares, helping to support prices. Admittedly, first-quarter repurchases of $205.8 billion were down 7.7% from the fourth quarter, but they were up 8.9% from a year earlier, according to S&P Dow-Jones Indices. Apple alone has bought $23.1 billion in shares during Q1.
However, arrayed against those factors are some potential headwinds:
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