Market Summary
June is historically one of the toughest months for markets.
In fact, it ranks second worst month of all time! One looming concern is the
steady increase in investors using borrowed money to buy stocks. Total margin
debt hit a record $507 billion in mid-April, according to the most recent
figures from the New York Stock Exchange. High levels of margin debt do not
necessarily mean a selloff is coming. But they can make selloffs more violent
should volatility increase. "Margin debt is usually at record highs when
markets peak, but it’s also usually at record highs in the months and years
leading up to a market high," said Paul Hickey of Bespoke Investment Group.
European Central Bank President Mario Draghi told us "we should get used
to periods of higher volatility" which he assures us is common when
interest rates are low. It seems as if Treasuries, Real Estate and Gold are
already sinking as a precursor to action by the Fed. In the second-quarter
chart below, Nasdaq shares remain the best performers. This is mostly due to
biotechnology stocks being a major component of the Nasdaq index and these
shares have been soaring all year.
June started off strong before faltering on shaky economic
news out of a Greece and a struggling domestic economy. With nearly half the
year in the books, the S&P 500 Index has only had one winning streak as
long as four days this year, and just one losing streak that long - a five-day
skid in mid-January. The benchmark S&P 500 settled below a key technical
level of its 50-day moving average for the first time in a month. For the week,
the S&P 500 fell 0.7%, its second straight week of losses, the Dow was down
0.9% and the Nasdaq was down 0.03%.
Investment Analysis
Stock investors are expected to tread carefully next week,
as speculation about the timing of a U.S. Federal Reserve interest rate hike
adds to concerns about valuations. The S&P Utilities index tends to fall
when bond yields rise, is down and remains one of the weakest-performing
sectors. The U.S. benchmark bond yield jumped to its highest since October,
with the Energy sector following the expected negative path and Industrials
flat. Over the past month Health Care is the strongest as this group is
actually the best performing S&P sector for the entire year. Heath Care
sector gains are being driven by exceptional gains among biotechnology stocks.
Financial stocks might be a good near term bet if rates rise as pundits expect.
By Gregory Clay
Investment Strategist
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gregoryclay@theoptionplayer.com
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