Stableford Capital Market Commentary: June 2019

Powell Put?

…So much for sell in May and go away.

The S&P 500 increased 7% in June, after dropping nearly the same amount in May. A spectacular turnaround driven by yet more easy money signals from the Fed. It sure is nice, if a bit excessive given the US is near full employment and inflation looks fine. As it stands now, the S&P 500 is up 18.5% through June. (Figure 1).

Stableford Capital Market Commentary June 2019_Figure 1 — Stableford Capital Market Commentary June 2019 Figure 1

What Changed in June?

Recall that during May yields on the US Treasury 10 yr. fell from 2.5% to 2.125% (Figure 1). This large decline was the result of the bond market sniffing out a slowdown in the economy. At the same time, the S&P 500 fell nearly 7% as equities also anticipated a slowdown.

However, during June the Federal Reserve began to speak more dovishly, signaling lower interest rates. This was all the equity market needed. Once investors believed that “the Fed has your back”, equities rallied to finish the month up 7% (Figure 2).

But how do we know it was Fed driven? According to Goldman Sachs, valuation expansion accounted for 97% of the increase in the stock market during June (i.e. earnings were nearly unchanged). So almost all the market move was the anticipation of better future earnings as the Fed eases.

Perversely, as economic news got worse, the equity market went up, reflecting the view that the Fed was increasingly likely to lower rates further.

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This market commentary was written and produced by Stableford Capital, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 INDEX: The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

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Stableford Capital Market Commentary: June 2019

Powell Put?

What Changed in June?

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