Early on, the market begin exhibiting renewed volatility, confused by mixed economic signals including longer term rates dropping in the face of higher inflation, some weaker than expected economic reports (i.e. the Employment report for May), but also a spike in the price of oil. A battle in market leadership between large company growth stocks vs. all others ensued as market participants began to question where the economy stood in the current expansion cycle (i.e. mid-cycle vs. mature). During the 2nd week, the 10-year yield fell 10 basis points even through the CPI report came in exceedingly strong. This resulted with "late stage" sentiment holding sway for the time being, thus favoring large company growth stocks which were off and running. Stocks of other styles, which perform best during the mid-stages of a growth cycle, sold off. Results of the Fed meeting at mid-month did little to change investors minds when it signaled that two rate hikes may be coming by the end of next year. This was a change from previous indications by the Fed of no rate hikes though 2023, thus lowering expectations of a reflation scenario in which Value and smaller stocks excel. This narrative was further supported by a pull-back in some commodity prices (i.e. copper). Mid-cycle stocks soon bounced back however on less hawkish statements from the Fed and news of Congressional work on a bipartisan infrastructure bill that if passed, would likely be supportive of mid-cycle stocks. Towards month-end, large company growth stocks strongly rallied on no specific news other than a further decline in intermediate and longer term interest rates. The S&P 500 Index wound up gaining 2.22% for the month and 8.17% for the 2nd Quarter. Large company growth stocks outperformed all others in June, i.e. the S&P Large-Cap Growth ETF (IVW) gained 5.6% while the S&P Mid-Cap and Small-Cap Value ETF's lost ground.
- steve scott