Similar to earlier months this year, in June, the S&P5001 had peaked mid-month and then had a quick sell-off. Unlike other months, however, this month has largely bounced back and is as of this writing only slightly positive on the month. As of our last writing, we observed several factors that were turning positive. Well, that seems to be overshadowed by the Federal Reserve’s comments that came out on June 16th which incidentally coincided with the market’s mid-month peak.
The Federal Reserve’s commentary was only slightly more aggressive (often referred to as “Hawkish”) than it had been previously. Nothing said changed anything in the near term. So, the market’s fear didn’t seem justified. At least not at the time. Only time will tell if this leads to bigger issues or not.
As of Thursday night, our Shadowridge Dashboard is showing Positive to Negative sectors as 5 to 6 which is fairly neutral and weakening. While many sectors are struggling, the NASDAQ, which had been lagging behind all year, has re-emerged as the one strong place in the market.
We’re still looking at the Shiller PE ratio (see last month’s chart) and wondering how much longer the market can stay positive. Based on this data, we’re now seeing several projections for the S&P500 index to be flat to slightly negative over the next decade. That doesn’t mean the S&P500 will plod along flat for 10 years; rather, it is likely to be highly volatile with large swings that will ultimately cancel each other out. This would be much like we saw in the market from 2000 to 2010, also referred to as “the lost decade.”
This month’s chart is an interesting ratio between the S&P 500 and the 30 Year Treasury. If the Black line is rising over the Red line, then the S&P500 index is stronger than bonds (generally positive for the market). And if the Black line is falling below the Red line, then Bonds are stronger and the Stock Index is showing weakness (generally negative for the market). Now, to be fair, the Treasury Bond market was overly weak during February and March, which skews the data more up-ward in that time than it would normally be.
Bonds –continue to improve, but the Aggregate Bond Index is still negative on the year. The Aggregate Bond Index AGG is now at -1.86%. High Yield bonds remain strong, being up around 2.37% so far in 2021 (FastTrack Data). It hasn’t been a good year for investors who have a lot of exposure to the Bond Indexes.
Don’t forget to catch our monthly webinar version of this newsletter, where I dive deeper into what I mention in the newsletter commentary. For me, nothing tells the story as much as visuals, so that is how I prefer to dig into what we’re doing with investment decisions. After me, Phil and Laura will be presenting financial planning topics to help you with life’s financial challenges and opportunities. We hope you can join us – Wednesday, July 7th at noon Central time.
You can sign up for the webinar here. We look forward to seeing you there!
1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.
2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.