US stocks’ recovery continued in June as optimism over business reopenings remained high and economic news topped expectations. US stocks posted their best quarterly performance since 1998 as all states opened up for business to some degree in June. For the quarter, the Fed’s moves and stimulus measures by the US government provided support for US stocks. Economic news began to improve despite the US officially entering a recession beginning in February. While new claims for unemployment insurance remain high, employers added 2.5 million jobs in May, the most on record, significantly better than the further job losses expected. The unemployment rate fell from 14.7% in April to 13.3% in May. US retail sales soared 17.7%, significantly outpacing expectations, and new homes sales jumped 21% in May. Us manufacturing output continued to contract, but at a slower pace and purchasing manager surveys showed global business activity had slower declines in May suggesting the recent economic weakness could be bottoming out.
Foreign stocks were the top performing asset class in June and posted their best quarter in nearly 10 years driven by the loosening of lockdowns, improving economic numbers, and central bank support. Providing a glimpse of the trough of economic performance brought on by the virus, the UK said April GDP was down 25% from a year earlier. The European Central Bank (ECB) significantly increased its bond buying program to $1.52 trillion, moving it more in line with the Fed. EU officials are still negotiating on a $2 trillion coronavirus response plan, but most European countries have fully reopened and have not seen a new surge in cases. Oil continued to rebound, rising 10.6% over the month to finish at $39.27 a barrel driven by OPEC production cuts as well as reduced production in the US. China continues to bounce back from Covid-19 with manufacturing activity and the service sector showing growth in May. Emerging markets have outpaced developed markets for June, the second quarter, and the year to date.
Bonds rose in June as interest rates remained flat. After the Fed’s June meeting they stated they planned to not raise interest rates through 2022 and they will continue their current pace of Treasury and mortgage backed security purchases. The Fed also announced during the month they were expanding the municipalities allowed to borrow directly from the Fed’s lending program and it would expand its bond buying program to include debt from individual companies. Since the virus began significantly impacting the US, the Fed has implemented nine different emergency lending programs to support the economy. The 10-year Treasury yield was flat over the month ending at 0.66%, only down slightly from 0.70% where it started the second quarter. However, it has declined significantly from 1.92% to start the year. For the month and quarter, credit bonds were the top performers with longer term maturities outpacing short term maturities. Over the year to date, it was US government bonds leading the way with longer maturities outpacing.
|Index Performance||June||2Q||YTD||Trl. 1 Yr.|
|US Stock (Russell 3000)||2.29%||22.03%||-3.48%||6.53%|
|Foreign Stock (FTSE AW ex US)||4.48%||16.56%||-10.65%||-3.99%|
|US Bond Mkt. (BarCap Int. Gov/Credit)||0.62%||2.81%||5.28%||7.12%|
|Municipal Bonds (BarCap 1-10yr Muni)||0.39%||2.68%||2.06%||3.65%|
|Cash (ICE ML 3Month T-Bill)||0.01%||0.02%||0.60%||1.63%|
There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results. You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Wealth Management, LLC. This information was gathered from reliable sources but we cannot guarantee accuracy. Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated. Source: Morningstar, Inc.