June Investment Perspectives
Finding direction with manufacturing and services data, fixed income & economic growth, and issues facing stocks this summer.
In this month's issue:
We Remain Vigilant Bulls - Mark Luschini
Among the many variables we watch to help prognosticate the general direction of the economy and stock prices, the Institute for Supply Management’s Purchasing Managers’ Index (PMI) is one of the most important.
Let me interject by saying no single data point, or collection of data, is infallible. After all, the economy is dynamic. Markets are reacting to not what we know today, but rather what the future is likely to hold. That creates a non-trivial amount of forecasting error since many things can change rapidly.
A Turn Towards Slowing - Guy LeBas
Inflation has been, far and away, the most concerning element of the economy for the fixed income markets. From late 2021 into 2022, the (historically boring) monthly Consumer Price Index release has taken on greater attention than the (historically volatile) monthly manufacturing index and jobs releases. That shift in attention seems only natural when inflation data have been on an unusual path. However, last month brought with it a notable shift in the underlying concern of elevated inflation to that of risks to downside economic growth.
Summertime And The Livin’ Is Expensive - Greg Drahuschak
Last month’s contribution to Investment Perspectives ended by suggesting that technical issues could weigh on the market and necessitate an additional move lower before establishing a base for a solid rebound.
A move lower through most of May accompanied recession or bear market concerns that dominated the financial press. At one point in May, the S&P 500 year-to-date was down more than 19% with only 1932, 1940, and 1970 having worse starts to a year. As a result, sentiment expressed by the American Association of Individual Investors (AAII) survey had a significantly negative bias. Although extremely negative sentiment often marks a positive turn in market fortunes, it was not enough to influence the market until it combined with a significantly oversold technical condition to produce a late-month selling reprieve that by May 27 brought the S&P 500 to a modest gain for the month.
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